-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L8bxq+JIp3NwVrTCYvXPqqsLFCjEffgdp5tV1oeGDu6PqIbINlhdkIzD99X9foCx GMs0uY7MHvElEEF+bbF4gQ== 0000006207-09-000001.txt : 20090312 0000006207-09-000001.hdr.sgml : 20090312 20090312142335 ACCESSION NUMBER: 0000006207-09-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20090131 FILED AS OF DATE: 20090312 DATE AS OF CHANGE: 20090312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMREP CORP. CENTRAL INDEX KEY: 0000006207 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 590936128 STATE OF INCORPORATION: OK FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04702 FILM NUMBER: 09675238 BUSINESS ADDRESS: STREET 1: 300 ALEXANDER PARK STREET 2: SUITE 204 CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: (609) 716-8200 MAIL ADDRESS: STREET 1: 300 ALEXANDER PARK STREET 2: SUITE 204 CITY: PRINCETON STATE: NJ ZIP: 08540 FORMER COMPANY: FORMER CONFORMED NAME: AMREP CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN REALTY & PETROLEUM CORP DATE OF NAME CHANGE: 19671019 10-Q 1 axrq0309.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2009 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ----------------------- Commission File Number 1-4702 ---------- AMREP Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 59-0936128 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 300 Alexander Park , Suite 204, Princeton, New Jersey 08540 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (609) 716-8200 ----------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name,former address and former fiscal year,if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer X --- --- Non-accelerated filer Smaller reporting company --- --- (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X ------ ------ Number of Shares of Common Stock, par value $.10 per share, outstanding at February 28, 2009 - 5,996,212. AMREP CORPORATION AND SUBSIDIARIES INDEX ----- PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements Consolidated Balance Sheets (Unaudited) January 31, 2009 and April 30, 2008 1 Consolidated Statements of Operations and Retained Earnings (Unaudited) Three Months Ended January 31, 2009 and 2008 2 Consolidated Statements of Operations and Retained Earnings (Unaudited) Nine Months Ended January 31, 2009 and 2008 3 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended January 31, 2009 and 2008 4 Notes to Consolidated Financial Statements (Unaudited) 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 PART II OTHER INFORMATION Item 1. Legal Proceedings 22 Item 1A. Risk Factors 22 Item 6. Exhibits 23 SIGNATURE 24 EXHIBIT INDEX 25 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ------- -------------------- AMREP CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (Thousands, except par value and number of shares) January 31, April 30, 2009 2008 ------------------ ------------------ ASSETS: Cash and cash equivalents $ 18,347 $ 32,608 Restricted cash 3,856 - Receivables, net: Real estate operations 4,064 13,124 Media services operations 50,059 45,701 ------------------ ------------------ 54,123 58,825 Taxes receivable 1,487 - Real estate inventory 81,817 70,252 Investment assets, net 11,394 10,300 Property, plant and equipment, net 32,500 28,914 Intangible and other assets, net 27,182 29,913 Goodwill 54,139 54,139 ------------------ ------------------ TOTAL ASSETS $ 284,845 $ 284,951 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Accounts payable, net and accrued expenses $ 77,850 $ 98,532 Notes payable: Amounts due within one year 27,029 4,816 Amounts subsequently due 15,366 21,164 ------------------ ------------------ 42,395 25,980 Taxes payable - 980 Deferred income taxes and other long-term liabilities 14,653 12,358 Accrued pension cost 2,010 2,045 ------------------ ------------------ TOTAL LIABILITIES 136,908 139,895 ------------------ ------------------ SHAREHOLDERS' EQUITY: Common stock, $.10 par value; Shares authorized - 20,000,000; 7,420,704 shares issued at January 31, 2009 and 7,419,704 at April 30, 2008 742 742 Capital contributed in excess of par value 46,100 46,085 Retained earnings 131,274 128,408 Accumulated other comprehensive loss, net (3,522) (3,522) Treasury stock, at cost; 1,424,492 shares (26,657) (26,657) ------------------ ------------------ TOTAL SHAREHOLDERS' EQUITY 147,937 145,056 ------------------ ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 284,845 $ 284,951 ================== ==================
1 AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited) Three Months Ended January 31, 2009 and 2008 (Thousands, except per share amounts) 2009 2008 ------------------ ------------------ REVENUES: Real estate land sales $ 521 $ 6,302 Media services operations 35,051 36,458 Interest and other 148 675 ------------------ ------------------ 35,720 43,435 ------------------ ------------------ COSTS AND EXPENSES: Cost of sales - real estate land sales 333 2,332 Operating expenses: Media services operations 30,874 30,492 Real estate commissions and selling 79 300 Other 465 (305) General and administrative: Media services operations 3,545 3,228 Real estate operations and corporate 1,182 1,259 Restructuring and fire recovery costs, net (83) 387 Interest expense, net of capitalized amounts 222 274 ------------------ ------------------ 36,617 37,967 ------------------ ------------------ INCOME (LOSS) BEFORE INCOME TAXES (897) 5,468 PROVISION (BENEFIT) FOR INCOME TAXES (797) 2,022 ------------------ ------------------ NET INCOME (LOSS) (100) 3,446 RETAINED EARNINGS, beginning of period 131,374 124,433 ------------------ ------------------ RETAINED EARNINGS, end of period $ 131,274 $ 127,879 ================== ================== EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ (0.02) $ 0.57 ================== ================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 5,996 6,014 ================== ==================
2 AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited) Nine Months Ended January 31, 2009 and 2008 (Thousands, except per share amounts) 2009 2008 ------------------ ------------------ REVENUES: Real estate land sales $ 6,594 $ 27,613 Media services operations 104,328 104,317 Interest and other 658 4,955 ------------------ ------------------ 111,580 136,885 ------------------ ------------------ COSTS AND EXPENSES: Cost of sales - real estate land sales 853 9,663 Operating expenses: Media services operations 91,324 90,237 Real estate commissions and selling 248 641 Other 999 620 General and administrative: Media services operations 9,825 9,568 Real estate operations and corporate 3,257 3,447 Restructuring and fire recovery costs, net 629 807 Interest expense, net of capitalized amounts 481 899 ------------------ ------------------ 107,616 115,882 ------------------ ------------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,964 21,003 PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 1,098 7,770 ------------------ ------------------ INCOME FROM CONTINUING OPERATIONS 2,866 13,233 LOSS FROM OPERATIONS OF DISCONTINUED BUSINESS (NET OF INCOME TAXES) - (57) ------------------ ------------------ NET INCOME 2,866 13,176 RETAINED EARNINGS, beginning of period 128,408 121,333 DIVIDENDS PAID - (6,630) ------------------ ------------------ RETAINED EARNINGS, end of period $ 131,274 $ 127,879 ================== ================== EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED CONTINUING OPERATIONS $ 0.48 $ 2.09 DISCONTINUED OPERATIONS - (0.01) ------------------ ------------------ EARNINGS PER SHARE - BASIC AND DILUTED $ 0.48 $ 2.08 ================== ================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 5,996 6,332 ================== ==================
3 AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended January 31, 2009 and 2008 (Thousands) 2009 2008 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,866 $ 13,176 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,644 8,014 Non-cash credits and charges: Pension benefit (35) (246) Allowance for doubtful accounts 190 (349) (Gain) loss on disposition of assets, net 59 (1,781) Changes in assets and liabilities: Receivables (1,459) 3,184 Real estate inventory (5,020) (15,940) Intangible and other assets (196) (1,152) Accounts payable and accrued expenses (21,369) 4,944 Taxes payable (2,467) 2,053 Deferred income taxes and other long-term liabilities 2,295 3,236 ------------------ ------------------ Total adjustments (20,358) 1,963 ------------------ ------------------ Net cash provided by (used in) operating activities (17,492) 15,139 ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures - property, plant and equipment (1,521) (4,565) Capital expenditures - investment assets - (1,097) Acquisition, net of cash acquired (3,075) 195 Proceeds from disposition of assets - 4,749 Restricted cash (3,856) - ------------------ ------------------ Net cash used in investing activities (8,452) (718) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Acquisition of treasury stock - (21,363) Exercise of stock options 15 - Proceeds from debt financing 51,137 71,081 Principal debt payments (39,469) (74,683) Dividends paid - (6,630) ------------------ ------------------ Net cash provided by (used in) financing activities 11,683 (31,595) ------------------ ------------------ DECREASE IN CASH AND CASH EQUIVALENTS (14,261) (17,174) CASH AND CASH EQUIVALENTS, beginning of period 32,608 42,102 ------------------ ------------------ CASH AND CASH EQUIVALENTS, end of period $ 18,347 $ 24,928 ================== ================== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid - net of amounts capitalized $ 458 $ 1,029 ================== ================== Income taxes paid - net of refunds $ 1,834 $ 2,447 ================== ================== Non-cash transactions: Transfer to real estate inventory from receivables $ 6,530 $ 3,892 ================== ================== Transfer to real estate investment assets from receivables $ 1,125 $ - ================== ==================
4 AMREP CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Nine Months Ended January 31, 2009 and 2008 (1) Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements have been prepared by AMREP Corporation (the "Registrant" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information, and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, these unaudited consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to reflect a fair presentation of the results for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of what may occur in future periods. The unaudited consolidated financial statements herein should be read in conjunction with the Company's annual report on Form 10-K for the year ended April 30, 2008, which was previously filed with the Securities and Exchange Commission. All references to the third quarter or first nine months of 2009 and 2008 mean the fiscal three and nine month periods ended January 31, 2009 and 2008. Certain 2008 financial statement amounts have been reclassified to conform to the current year presentation. (2) Restricted Cash --------------- Restricted cash of $3,856,000 reflects amounts held in escrow that were received in connection with the sale of investment assets that are identified as "1031 Exchange assets" and which are restricted pending the purchase of identified replacement assets. (3) Receivables, Net ---------------- Accounts receivable, net consist of the following (in thousands): January 31, April 30, 2009 2008 --------------- ----------------- Real estate operations: Mortgage notes and other receivables $ 4,166 $ 13,236 Less allowance for doubtful accounts (102) (112) --------------- ----------------- $ 4,064 $ 13,124 =============== ================= Media Services operations: Subscription Fulfillment Services 29,381 27,915 Newsstand Distribution Services, net of estimated returns 18,997 18,008 Product Fulfillment Services and other 2,596 433 --------------- ----------------- 50,974 46,356 Less allowance for doubtful accounts (915) (655) --------------- ----------------- $ 50,059 $ 45,701 =============== ================= Real estate operations mortgage notes and other receivables have decreased from April 30, 2008, primarily due to the reclassification of approximately $6,530,000 to real estate inventory and $1,125,000 to investment assets from 5 mortgage notes receivable resulting from the Company's acceptance of deeds in lieu of foreclosure related to delinquent mortgage note receivables. Newsstand Distribution Services accounts receivable are net of estimated magazine returns of $55,154,000 at January 31, 2009 and $55,930,000 at April 30, 2008. In addition, pursuant to an arrangement with one publisher customer of the Newsstand Distribution Services business, the publisher bears the ultimate credit risk of non-collection of amounts due from the wholesaler customers to which the Company distributed the publisher's magazines under this arrangement. Accounts receivable subject to this arrangement were netted ($29,662,000 was netted at January 31, 2009 and $22,703,000 at April 30, 2008) against the related accounts payable due the publisher on the accompanying consolidated balance sheets. At January 31, 2009, net accounts receivable of Newsstand Distribution Services includes approximately $7,500,000 from a wholesaler customer that suspended normal business activities in February, which amount is subject to adjustment by magazine return activity subsequent to the end of the quarter that may differ from the Company's estimates. No payments of accounts receivable have been received by the Company from this customer after January 31, 2009. Because the amount of potential loss on amounts due from this wholesaler is unable to be estimated, the Company has not provided a specific allowance for uncollectibility, but it continues to monitor the collectibility of the net receivable and will provide an appropriate allowance if and when deemed necessary (see Note 14). (4) Investment Assets, Net ---------------------- Investment assets, net consist of the following (in thousands): January 31, April 30, 2009 2008 --------------- ----------------- Land held for long-term investment $ 10,880 $ 9,771 --------------- ----------------- Commercial rental properties: Land, buildings and improvements 754 754 Furniture and fixtures 40 40 --------------- ----------------- 794 794 Less accumulated depreciation (280) (265) --------------- ----------------- 514 529 --------------- ----------------- $ 11,394 $ 10,300 =============== ================= (5) Property, Plant and Equipment, Net ---------------------------------- Property, plant and equipment, net consist of the following (in thousands): January 31, April 30, 2009 2008 --------------- ----------------- Land, buildings and improvements $ 24,640 $ 17,875 Furniture and equipment and other 46,521 45,300 --------------- ----------------- 71,161 63,175 Less accumulated depreciation (38,661) (34,261) --------------- ----------------- $ 32,500 $ 28,914 =============== ================= The increase in Land, buildings and improvements is primarily attributable to the purchase of a warehouse in November 2008 (see Note 13). 6 (6) Intangible and Other Assets, Net -------------------------------- Intangible and other assets, net consist of the following (in thousands): January 31, 2009 April 30, 2008 ------------------------------------ ----------------------------------- Accumulated Accumulated Cost Amortization Cost Amortization -------------- ---------------- ------------- ---------------- Software development costs $ 10,143 $ 5,583 $ 10,017 $ 3,780 Deferred order entry costs 5,183 - 5,681 - Prepaid expenses 3,394 - 3,047 - Customer contracts and relationships 15,000 2,551 15,000 1,613 Other 2,694 1,098 2,430 869 -------------- ---------------- ------------- ---------------- $ 36,414 $ 9,232 $ 36,175 $ 6,262 ============== ================ ============= ================
Software development costs include internal and external costs of the development of new or enhanced software programs and are generally amortized over five years. Deferred order entry costs represent costs incurred in connection with the data entry of customer subscription information to database files and are charged directly to operations over a twelve month period. Customer contracts and relationships are amortized over twelve years. (7) Accounts Payable, Net and Accrued Expenses ------------------------------------------ Accounts payable, net and accrued expenses consist of the following (in thousands): January 31, April 30, 2009 2008 ----------------- ---------------- Publisher payables, net $ 59,606 $ 77,003 Accrued expenses 4,261 5,000 Trade payables 3,917 5,753 Other 10,066 10,776 ----------------- ---------------- $ 77,850 $ 98,532 ================= ================ As described in Note 3, pursuant to the arrangement with one publisher customer of the Newsstand Distribution Services business, the publisher bears the ultimate credit risk of non-collection of amounts due from the customers to which the Company distributed the publisher's magazines under this arrangement. Accounts receivable subject to this arrangement were netted ($29,662,000 was netted at January 31, 2009 and $22,703,000 at April 30, 2008) against the related accounts payable due the publisher on the accompanying consolidated balance sheets. 7 (8) Notes Payable ------------- Notes payable consist of the following (in thousands): January 31, April 30, 2009 2008 ----------------- ---------------- Notes payable: Line-of-credit borrowings: Real estate operations $ 25,000 $ 18,000 Media services operations 12,243 4,582 Real estate operations term loan - 2,774 Other notes payable 5,152 624 ----------------- ---------------- $ 42,395 $ 25,980 ================= ================ The increase in Other notes payable is due to the assumption of a mortgage note payable in connection with the purchase of a warehouse in November 2008 (see Note 13). (9) Taxes ----- The Company recognized a net tax benefit of $797,000 during the three month period ended January 31, 2009, primarily resulting from a pre-tax loss for the quarter of $897,000 and a reduction in liabilities related to unrecognized tax benefits pursuant to Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes". The liabilities related to unrecognized tax benefits that would have an impact on the effective tax rate were $1,585,000 at January 31, 2009 and $2,076,000 at April 30, 2008. (10) Fair Value Measurements ----------------------- In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements". SFAS No. 157 establishes a common definition for fair value to be applied to U.S. GAAP requiring use of fair value, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. The Company's adoption of SFAS No. 157 for financial assets and financial liabilities, effective May 1, 2008, did not have an impact on its consolidated financial position or results of operations. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements in order to facilitate comparisons between entities choosing different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect existing accounting requirements for certain assets and liabilities to be carried at fair value. SFAS No. 159 became effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS No. 159 effective May 1, 2008, but it has not designated any financial instruments to be subject to the fair value option. 8 (11) Discontinued Operations ----------------------- Loss from operations of discontinued business (net of income taxes) in the nine month period ended January 31, 2008 reflected costs associated with the settlement of all litigation related to the Company's El Dorado, New Mexico former water utility subsidiary that were in addition to costs that had been accrued for this matter in prior years. (12) Restructuring and Fire Recovery Costs ------------------------------------- In January 2008, the Company announced a project to unify its magazine subscription, membership and direct mail fulfillment services from three locations into one location at Palm Coast, Florida, which is expected to streamline operations, improve service to clients and create cost efficiencies through reduced overhead costs and the elimination of operating redundancies. The Company is still evaluating various alternatives for this expansion, which could require capital expenditures in the range of $15,000,000 to $20,000,000. The project is scheduled to be implemented over a two-to-three year period, and over that period may involve approximately $6,000,000 of non-recurring cash costs for severance, training and transition, facility closings and equipment relocation. The State of Florida and the City of Palm Coast have agreed to provide incentives for the project, including cash and employee training grants and tax relief, which could amount to as much as $8,000,000, largely contingent on existing job retention, new job creation and capital investment. Previously during fiscal 2008, the Company announced (i) one significant workforce reduction in its Subscription Fulfillment Services business that occurred in the third quarter of fiscal 2008, (ii) a plan to redistribute the work performed at the Marion, Ohio facility of its Fulfillment Services business and the scheduled closing of that facility that was substantially completed in August 2008, and (iii) the consolidation of fulfillment operations customer call centers. During the quarter ended January 31, 2009, the Company recognized $175,000 of income for certain incentives related to the unification project, which are netted with costs of $169,000. As a result, the Company reported a net gain of $6,000 related to the unification project in the third quarter of 2009 and incurred net costs of $567,000 for the first nine months of 2009 compared to net costs of $136,000 and $556,000 for the same periods of 2008, principally for severance and consulting costs. The items of income related to incentives and costs related to the unification project are included in Restructuring and fire recovery costs in the Company's consolidated statements of operations and retained earnings. On December 5, 2007, a warehouse of approximately 38,000 square feet leased by the Company's Kable News Company, Inc. subsidiary ("Kable News") in Oregon, Illinois was totally destroyed by fire. The warehouse was used principally to store back issues of magazines published by certain customers for whom the Company filled back-issue orders as part of its services. The Company was required to provide insurance for certain of those customers whose property was destroyed in the warehouse fire. Through February 28, 2009, the Company's insurance carrier had paid approximately $211,000 to customers for lost materials. Subject to the outcome of the lawsuit referred to in the final paragraph of this Note 12, the Company believes that the net effect of the outcome of other pending or unasserted claims related to materials of certain publishers for whom it was required to provide insurance, together with proceeds from its property claims, will not have a material effect on its financial position, results of operations or cash flows. The Company has filed a preliminary claim with its insurance provider for its property loss as a result of the fire and has been advanced $500,000 for replacement of such property. During the quarter ended January 31, 2009, the Company replaced a portion of the fixed assets lost in the warehouse fire and recorded a $134,000 gain resulting from the recognition of insurance proceeds, which is netted against costs related to the fire. As a result, the Company reported a net gain of $77,000 for the third quarter and net charges to operations of $62,000 for the first nine months of 2009 related to fire recovery costs, principally for legal and other advisory costs that were not covered by insurance. The item of income related to insurance proceeds and the fire recovery costs are included in Restructuring and fire recovery costs in the Company's consolidated statements of operations and retained earnings. In 9 addition, the Company recorded $173,000 of other income in the first quarter of 2009 for a business interruption claim resulting from the fire, and has approximately $140,000 of business interruption claims pending with but not approved by its insurance provider. In June 2008, a lawsuit was brought against Kable News by the owner of the warehouse building leased by the subsidiary that was totally destroyed in the fire. A temporary staffing company that provided the subsidiary with an employee who is alleged to have had a role in causing the fire while operating a forklift is also named as a defendant. Plaintiff's claims specific to Kable News are based on allegations of negligence and willful and wanton misconduct. The Company's liability insurance provides coverage for the negligence claim up to the policy limit, which may or may not be as much as the full amount of plaintiff's claimed damages, which is unknown at this time. Additionally, the insurance carrier has indicated it intends to deny coverage of the willful and wanton misconduct claim. A summary judgment motion brought by the temporary staffing company defendant has been denied. The Company believes Kable News has good defenses to the claims and also has potential cross-claims against the other parties for their conduct in the matter, and Kable News intends vigorously to defend the lawsuit. However, the proceeding remains at an early stage, and the Company is not in a position to predict its outcome. In November 2008, a lawsuit was brought against Kable News by a magazine publisher and a number of insurance companies as the subrogees of other magazine publishers whose property stored by Kable News in the warehouse was destroyed in the fire. The three defendants are the warehouse owner, Kable News and the temporary staffing company that provided an employee who is alleged to have had a role in causing the fire. Plaintiffs' claims specific to Kable News are based on allegations of negligence, breach of contract and willful and wanton misconduct. The complaint seeks damages in an amount in excess of $1,000,000. The Company believes that Kable News has good defenses to the claims and also has potential cross-claims against the other defendants for their conduct in the matter, and intends vigorously to defend the lawsuit. However, the proceeding is at a very early stage, and the Company is not in a position to predict its outcome. (13) Acquisitions ------------ On November 7, 2008, the Company announced the purchase, through a newly-formed subsidiary of Kable Media Services, Inc., of certain assets of Service Parts Supply Corp. ("SPS"), a privately-held company engaged in the product repackaging and fulfillment industry located in Fairfield, Ohio. In a separate transaction, another Company subsidiary purchased a warehouse leased by SPS. These transactions are expected to provide benefits to many of the customers of the Company's product fulfillment subsidiary through the combination of that subsidiary's services with those to be provided with the purchased SPS assets. Lastly, on the same date, another newly-formed subsidiary of Kable Media Services, Inc. purchased certain assets of Resource One Staffing, LLC, a provider of temporary staffing services that was majority-owned by the same individual who owned SPS. The aggregate purchase price of the assets purchased in the three transactions was approximately $8,500,000, and was financed from working capital, bank borrowings and the assumption of a mortgage note on the warehouse. The transactions have been accounted for as a business combination. The purchase price (including closing costs and excluding cash acquired) has been preliminarily allocated as follows: Receivables - $1,565,000; Inventory - $118,000; Property, plant and equipment - $6,826,000; Mortgage note payable - $4,747,000, and Other liabilities - $687,000. (14) Subsequent Events ----------------- In January 2009, Anderson News, LLC ("ANCO"), a major wholesaler of magazines for retail distribution and a major Newsstand Distribution Services customer, announced a significant price surcharge and substantive changes to inventory 10 risk practices effective February 1, 2009 and advised that it would no longer distribute publishers' magazines if the publisher did not agree to the revised policies. Shortly thereafter, Source Interlink Distribution, LLC ("SID"), another major wholesaler and Newsstand Distribution Services customer, announced that it also was imposing the price surcharge. ANCO and SID accounted for approximately 50% of nationwide magazine retail distribution. In response to these announcements, many publishers and national distributors, including the Company's Kable Distribution Services, Inc. ("KDS") subsidiary, which operates the Newsstand Distribution Services business, suspended shipments to ANCO and SID and made alternative distribution arrangements, principally with the two other major industry wholesalers. On February 7, 2009, ANCO announced that it planned to suspend normal business activities, which occurred on February 16, 2009. On February 19, 2009, KDS was informed that ANCO was in the process of an orderly liquidation and that it was in default of its extensively secured bank loan. On March 2, five publishers filed an involuntary bankruptcy petition against ANCO under chapter 7 of the U.S. Bankruptcy Code seeking to have ANCO declared bankrupt and liquidated, but no decision on this petition has yet been announced by the Bankruptcy Court. At January 31, 2009, KDS had estimated net accounts receivable from ANCO of approximately $7,500,000, which amount is subject to adjustment by magazine return activity subsequent to the end of the quarter that may differ from the Company's estimates. No payments of accounts receivable have been received by KDS from ANCO after January 31, 2009. As the amount, if any, of ANCO's assets that may be available for payment to ANCO's unsecured creditors, including KDS, is presently unable to be estimated, no allowance for uncollectibility of this account receivable has yet been established, but the Company believes it is possible that a significant amount of the ANCO account receivable may ultimately be determined to be uncollectible, that such determination could be made as early as during the Company's current fiscal quarter ending April 30, 2009, and that the effect of this determination on Kable's financial results could be to place Kable (including its subsidiaries) in default of its credit facility. If Kable is unable to obtain a waiver for any event of default on satisfactory terms, Kable (including its subsidiaries) would not be able to borrow funds under the credit facility until the non-compliance is cured and the lender would be permitted to exercise a number of remedies, including the right to seek immediate repayment of all outstanding loans. On February 9, 2009, SID brought a lawsuit against KDS, certain other national distributors, two of the major wholesalers and certain major publishers in which it alleged that the magazine publishers and distributors conspired to boycott SID to drive it out of business, and that the wholesalers participated in this effort. It has asserted claims under Section 1 of the Sherman Act (antitrust) for defamation and for tortious interference with its contracts with retailers. Damages have not been quantified. SID requested a preliminary injunction and obtained a temporary restraining order which required the publishers and distributors to continue to ship magazines to SID pending the hearing on the preliminary injunction motion. On February 18, 2009, SID settled with one of the publishers and advised the Court that it would no longer seek a preliminary injunction. Accordingly, the temporary restraining order was vacated. On February 27, 2009, SID announced it had settled with another publisher. The remaining defendants, including KDS, have moved to dismiss the lawsuit. The Company believes that KDS has good defenses to the claims and intends vigorously to defend the lawsuit. In view of the very early stage of this case, the Company is not in a position to predict its outcome. In the meantime, KDS is continuing to ship product to SID without the surcharge. On March 10, 2009, ANCO commenced a civil action against KDS and others. The complaint contains allegations substantially similar to those made by SID. As a result of the disruption to the magazine distribution system described above, there has been an adverse effect on commission revenues in the Newsstand Distribution Services business that is continuing, and at this time the Company is not able to quantify the effect of this disruption on its financial condition and results of operations. (15) Information About the Company's Operations in Different Industry Segments -------------------------------------------------------------------------- As a result of the purchase of assets of certain businesses in November 2008 (see Note 13), the Company reclassified for both 2009 and 2008 certain revenues, expenses and capital expenditures previously reported as part of its Subscription Fulfillment Services segment and has reported them with revenues, expenses and capital expenditures of those businesses since the date of purchase as a separate segment, "Product Fulfillment Services and Other". The following tables set forth summarized data relative to the industry segments for continuing operations in which the Company operated for the three and nine month periods ended January 31, 2009 and 2008 (in thousands): 11 Product Subscription Newsstand Fulfillment Real Estate Fulfillment Distribution Services and Corporate Operations Services Services Other and Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ Three months ended January 31, 2009: Revenues $ 656 $ 28,998 $ 2,923 $ 3,130 $ 13 $ 35,720 Income (loss) from continuing operations 96 (540) 29 140 175 (100) Provision (benefit) for income taxes from continuing operations (1,026) (40) 32 74 163 (797) --------------- -------------- -------------- --------------- ------------ ----------- Income (loss) from continuing operations before income taxes (930) (580) 61 214 338 (897) Interest expense (income), net (b) 24 619 (223) 16 (214) 222 Depreciation and amortization 10 2,610 149 19 37 2,825 --------------- -------------- -------------- --------------- ------------ ----------- EBITDA (c) $ (896) $ 2,649 $ (13) $ 249 $ 161 $ 2,150 --------------- -------------- -------------- --------------- ------------ ----------- Capital expenditures $ - $ 730 $ - $ 134 $ 6,498 $ 7,362 - ------------------------------------------------------------------------------------------------------------------------------------ Three months ended January 31, 2008 (a): Revenues $ 6,943 $ 32,645 $ 2,944 $ 892 $ 11 $ 43,435 Income (loss) from continuing operations 2,440 622 151 (106) 339 3,446 Provision for income taxes from continuing operations 1,433 303 89 - 197 2,022 --------------- -------------- -------------- --------------- ------------ ----------- Income (loss) from continuing operations before income taxes 3,873 925 240 (106) 536 5,468 Interest expense (income), net (b) - 1,236 (346) - (616) 274 Depreciation and amortization 9 2,404 246 10 2 2,671 --------------- -------------- -------------- --------------- ------------ ----------- EBITDA (c) $ 3,882 $ 4,565 $ 140 $ (96) $ (78) $ 8,413 --------------- -------------- -------------- --------------- ------------ ----------- Capital expenditures $ 26 $ 1,544 $ 74 $ - $ - $ 1,644 - ------------------------------------------------------------------------------------------------------------------------------------ Product Subscription Newsstand Fulfillment Real Estate Fulfillment Distribution Services and Corporate Operations Services Services Other and Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ Nine months ended January 31, 2009: Revenues $ 7,186 $ 90,175 $ 9,374 $ 4,779 $ 66 $ 111,580 Income (loss) from continuing operations 2,556 (1,349) 609 226 824 2,866 Provision (benefit) for income taxes from continuing operations 566 (515) 445 124 478 1,098 --------------- -------------- -------------- --------------- ------------ ----------- Income (loss) from continuing operations before income taxes 3,122 (1,864) 1,054 350 1,302 3,964 Interest expense (income), net (b) 24 2,300 (841) 16 (1,018) 481 Depreciation and amortization 30 7,103 434 37 40 7,644 --------------- -------------- -------------- --------------- ------------ ----------- EBITDA (c) $ 3,176 $ 7,539 $ 647 $ 403 $ 324 $ 12,089 --------------- -------------- -------------- --------------- ------------ ----------- Capital expenditures $ 8 $ 1,371 $ 10 $ 134 $ 6,499 $ 8,022 - ------------------------------------------------------------------------------------------------------------------------------------ Nine months ended January 31, 2008 (a): Revenues $ 32,234 $ 92,111 $ 9,811 $ 2,449 $ 280 $ 136,885 Income (loss) from continuing operations 12,167 (1,318) 954 114 1,316 13,233 Provision (benefit) for income taxes from continuing operations 7,145 (705) 557 - 773 7,770 --------------- -------------- -------------- --------------- ------------ -----------
12 Income (loss) from continuing operations before income taxes 19,312 (2,023) 1,511 114 2,089 21,003 Interest expense (income), net (b) - 4,097 (1,215) - (1,983) 899 Depreciation and amortization 125 7,083 733 68 5 8,014 --------------- -------------- -------------- --------------- ------------ ----------- EBITDA (c) $ 19,437 $ 9,157 $ 1,029 $ 182 $ 111 $ 29,916 --------------- -------------- -------------- --------------- ------------ ----------- Capital expenditures $ 1,204 $ 4,344 $ 111 $ - $ 3 $ 5,662
(a) Segment information does not include net loss from discontinued operations of $57,000 in the nine months ended January 31, 2008. (b) Interest expense (income), net includes inter-segment interest income and expense that is eliminated in consolidation. (c) The Company uses EBITDA (which the Company defines as income from continuing operations before interest expense, net, income taxes and depreciation and amortization) in addition to income from continuing operations as a key measure of profit or loss for segment performance and evaluation purposes. Item 2. Management's Discussion and Analysis of Financial Condition ------------------------------------------------------------ and Results of Operations ------------------------- INTRODUCTION - ------------ The Company, through its subsidiaries, is primarily engaged in four business segments: the Real Estate business operated by AMREP Southwest Inc. and its subsidiaries (collectively, "AMREP Southwest") and the Subscription Fulfillment Services, Newsstand Distribution Services and Product Fulfillment Services businesses operated by Kable Media Services, Inc. and its subsidiaries (collectively, "Kable" or "Media Services"). The Company's foreign sales and activities are not significant. The following provides information that management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the April 30, 2008 consolidated financial statements and accompanying notes. All references in this Item 2 to the third quarter or first nine months of 2009 and 2008 mean the fiscal three and nine month periods ended January 31, 2009 and 2008. CRITICAL ACCOUNTING POLICIES AND ESTIMATES - ------------------------------------------ Management's discussion and analysis of financial condition and results of operations is based on the accounting policies used and disclosed in the April 30, 2008 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of the Company's annual report on Form 10-K for the year ended April 30, 2008 (the "2008 Form 10-K"). The preparation of those consolidated financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those estimates. The significant accounting policies of the Company are described in Note 1 to the April 30, 2008 consolidated financial statements, and the critical accounting policies and estimates are described in Management's Discussion and Analysis included in Item 7 of the 2008 Form 10-K. There have been no changes in these critical accounting policies. Information concerning the implementation and the impact of new accounting standards issued by the Financial Accounting Standards Board ("FASB") is included in the notes to the April 30, 2008 consolidated financial statements. 13 The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements", effective May 1, 2008. The adoption of SFAS No. 157 did not have an impact on the Company's consolidated financial position or results of operations. The Company also adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115", effective May 1, 2008. The adoption of SFAS No. 159 did not have an impact on the Company's consolidated financial position or results of operations. The Company did not adopt any new accounting policies during the quarter ended January 31, 2009. RESULTS OF OPERATIONS - --------------------- For the third quarter of 2009, the Company had net loss of $100,000, or $0.02 per share, compared to net income of $3,446,000, or $0.57 per share, in the third quarter of 2008. For the first nine months of fiscal 2009, net income was $2,866,000, or $0.48 per share, compared to net income of $13,176,000, or $2.08 per share, for the same period of 2008. Revenues were $35,720,000 and $111,580,000 in the third quarter and first nine months of 2009 compared to $43,435,000 and $136,885,000 in the same periods last year. Results for the first nine months of 2008 included a loss from discontinued operations of $57,000, net of tax, or $0.01 per share, that reflected costs incurred in the first quarter of 2008 in connection with the settlement of all litigation related to the Company's El Dorado, New Mexico former water utility subsidiary that were in addition to costs estimated and accrued for this matter in the fourth quarter of fiscal 2007. Revenues from land sales at AMREP Southwest were $521,000 and $6,594,000 for the three and nine month periods ended January 31, 2009 compared to $6,302,000 and $27,613,000 for the same periods of the prior year. The decrease of $5,781,000 for the third quarter of 2009 compared to the same quarter of 2008 reflected the sale in last year's third quarter of two commercial lots totaling $5,731,000 with no comparable sales in 2009. AMREP Southwest continues to experience substantially lower land sales in its principal market of Rio Rancho, New Mexico due to the severe decline in the real estate market in the greater Albuquerque-metro and Rio Rancho areas that began in earlier periods. Third quarter 2009 land sales revenues were from the sale of 11 developed residential lots and 3 undeveloped residential lots to homebuilders, while in the same period of fiscal 2008 there were land sales of 26 undeveloped residential lots to homebuilders and the sale of approximately 25 acres of undeveloped land to commercial developers. The trend of declining permits for new home construction in the Rio Rancho area also continues, with 32% fewer single-family residential building permits issued during calendar year 2008 than in calendar year 2007. The Company believes that this decline has been consistent with the well-publicized problems of the national home building industry and credit markets, including fewer sales of both new and existing homes, an increasing number of mortgage delinquencies and foreclosures and a tightening of mortgage availability. Faced with these adverse conditions, builders have slowed the pace of building on developed lots previously purchased from the Company in Rio Rancho and delayed or cancelled the purchase of additional developed lots. These factors have also contributed to a steep decline in the sale of undeveloped land to both builders and investors. 14 In Rio Rancho, the Company offers for sale both developed and undeveloped lots to national, regional and local home builders, commercial and industrial property developers and others. For the third quarter and first nine months of fiscal 2009 and 2008, the Company's land sales in Rio Rancho were as follows: Fiscal Year -------------------------------------------------------------------------------------- 2009 2008 --------------------------------------- ----------------------------------------- Revenues Revenues Acres Revenues Per Acre Acres Revenues Per Acre Sold (in 000s) (in 000s) Sold (in 000s) (in 000s) ---------- ----------- ----------- -------- ------------ ----------- Three months ended January 31: Developed Residential 1.5 $ 361 $ 241 - $ - $ - Commercial - - - 25.0 5,731 229 ---------- ----------- ----------- -------- ------------ ----------- Total Developed 1.5 361 241 25.0 5,731 229 Undeveloped 2.5 160 64 24.3 571 24 ---------- ----------- ----------- -------- ------------ ----------- Total 4.0 $ 521 $ 130 49.3 $ 6,302 $ 128 ---------- ----------- ----------- -------- ------------ ----------- Nine months ended January 31: Developed Residential 3.2 $ 789 $ 247 30.0 $ 9,468 $ 316 Commercial 1.0 126 126 38.8 8,651 223 ---------- ----------- ----------- -------- ------------ ----------- Total Developed 4.2 915 218 68.8 18,119 263 Undeveloped 134.4 5,679 42 326.5 9,494 29 ---------- ----------- ----------- -------- ------------ ----------- Total 138.6 $ 6,594 $ 48 395.3 $ 27,613 $ 70 ---------- ----------- ----------- -------- ------------ -----------
The average selling price of land sold by the Company in Rio Rancho in recent years has fluctuated, as the Company offers for sale both developed and undeveloped land from a number of different projects, and selling prices may vary from project to project and within projects depending on location, the stage of development and other factors. The revenue per acre of undeveloped land in the third quarter of 2009 was higher compared to the same period in the prior year due to the undeveloped land sold in the current year being from locations nearer developed areas and thus generally having higher average selling prices. The average gross profit percentage on land sales decreased from 63% in the third quarter 2008 to 36% for the same period in 2009, reflecting the fact that the 2008 third quarter land sales included approximately 25 acres of commercial property which carried a higher profit margin than was produced by the sale of developed residential lots in the third quarter of 2009. For the first nine months the average gross profit percentage increased from 65% in 2008 to 87% in 2009. This increase for the first nine months of 2009 was attributable to the mix of land sold, and principally was the result of a second quarter 2009 sale of 50 acres of undeveloped land to one purchaser for $3,849,000, which contributed a gross profit of $3,825,000 (99%). Revenues, gross profits, average sales prices and related gross profit percentages from land sales can vary significantly from period to period as a result of many factors, including the nature and timing of specific transactions, and prior results are not necessarily a good indication of what may occur in future periods. Revenues from the Company's Media Services operations decreased from $36,458,000 for the third quarter of 2008 to $35,051,000 for the same period in 2009, a decline of 4%. For the first nine months of 2009, Kable Media's revenues of $104,328,000 were generally unchanged from $104,317,000 in the same period of 2008. The revenue decrease in the third quarter of 2009 reflected an 11% revenue decrease from reduced and lost business from Subscription Fulfillment Services. The well-publicized problems confronting the magazine publishing industry, including declining advertising revenues, lower 15 subscription and newsstand sales and increasing costs, contributed to the decline in the revenues of Kable since publishing is the principal industry which Kable serves. Revenues from Subscription Fulfillment Services operations decreased from $32,645,000 and $92,111,000 for the three and nine month periods of 2008 to $28,998,000 and $90,175,000 for the comparable periods in 2009, primarily reflecting the net effect of the previously mentioned reduced and lost business from certain customers that was offset in part by revenue gains from new and existing clients. Revenues from Newsstand Distribution Services operations were generally unchanged for the third quarter of 2009 compared to the third quarter of 2008, totaling $2,923,000 this year compared to $2,944,000 for the same period in 2008. Newsstand Distribution Services revenues decreased from $9,811,000 for the first nine months of 2008 to $9,374,000 for the same period in 2009, primarily reflecting a softening of magazine newsstand demand. Revenues from Product Fulfillment Services and other increased from $892,000 and $2,449,000 for the three and nine month periods of the prior year to $3,130,000 and $4,779,000 for the comparable periods in the current year, primarily as a result of the inclusion of the results of operations of the Company's product repackaging business and temporary staffing services business from early November 2008 when the Company purchased certain assets of companies that had been in those businesses. Kable's operating expenses increased by $382,000 and $1,087,000 for the third quarter and first nine months of 2009 compared to the same periods in 2008, primarily attributable to higher consulting and computer systems integration costs of the Subscription Fulfillment Services business, which were partly offset by lower interest expense principally due to lower interest rates in both periods of 2009. As a result of the significant disruption in the magazine distribution system that occurred in February 2009 (see Note 14), there has been an adverse effect on commission revenues in the Newsstand Distribution Services business that is continuing. Because uncertainties still remain in the distribution system, the Company is not yet able to predict the effect of this disruption on its financial condition and results of operations. In January 2008, the Company announced a project to unify its magazine subscription, membership and direct mail fulfillment services from three locations into one location at Palm Coast, Florida, which is expected to streamline operations, improve service to clients and create cost efficiencies through reduced overhead costs and the elimination of operating redundancies. The Company is still evaluating various alternatives for this expansion, which could require capital expenditures in the range of $15,000,000 to $20,000,000. The project is scheduled to be implemented over a two-to-three year period, and over that period may involve approximately $6,000,000 of non-recurring cash costs for severance, training and transition, facility closings and equipment relocation. The State of Florida and the City of Palm Coast have agreed to provide incentives for the project, including cash and employee training grants and tax relief, which could amount to as much as $8,000,000, largely contingent on existing job retention, new job creation and capital investment. Previously during fiscal 2008, the Company announced (i) one significant workforce reduction in its Subscription Fulfillment Services business that occurred in the third quarter of fiscal 2008, (ii) a plan to redistribute the work performed at the Marion, Ohio facility of its Fulfillment Services business and the scheduled closing of that facility that was substantially completed in August 2008, and (iii) the consolidation of fulfillment operations customer call centers. During the quarter ended January 31, 2009, the Company recognized $175,000 of income for certain incentives related to the unification project, which are netted with costs of $169,000. As a result, the Company reported a net gain of $6,000 related to the unification project in the third quarter of 2009 and incurred net costs of $567,000 for the first nine months of 2009 compared to net costs of $136,000 and $556,000 for the same periods of 2008, principally for severance and consulting costs. The items of income related to incentives and costs related to the unification project are included in Restructuring and fire recovery costs in the Company's consolidated statements of operations and retained earnings. On December 5, 2007, a warehouse of approximately 38,000 square feet leased by the Company in Oregon, Illinois was totally destroyed by fire. The warehouse was 16 used principally to store back issues of magazines published by certain customers for whom the Company filled back-issue orders as part of its services. The Company was required to provide insurance for certain of those customers whose property was destroyed in the warehouse fire. Through February 28, 2009, the Company's insurance carrier had paid approximately $211,000 to customers for lost materials. The Company believes that the net effect of the outcome of other pending or unasserted claims related to materials of certain publishers for whom it was required to provide insurance, together with proceeds from its property claims, will not have a material effect on its financial position, results of operations or cash flows. The Company has filed a preliminary claim with its insurance provider for its property loss as a result of the fire and has been advanced $500,000 for replacement of such property. During the quarter ended January 31, 2009, the Company replaced a portion of the fixed assets lost in the warehouse fire and recorded a $134,000 gain resulting from the recognition of insurance proceeds, which is netted against costs related to the fire. As a result, the Company reported a net gain of $77,000 for the third quarter and net charges to operations of $62,000 for the first nine months of 2009 related to fire recovery costs, principally for legal and other advisory costs that were not covered by insurance. The item of income related to insurance proceeds and the fire recovery costs are included in Restructuring and fire recovery costs in the Company's consolidated statements of operations and retained earnings. In addition, the Company recorded $173,000 of other income in the first quarter of 2009 for a business interruption claim resulting from the fire, and has approximately $140,000 of business interruption claims pending with but not approved by its insurance provider. Interest and other revenues decreased $527,000 and $4,297,000 for the third quarter and nine month periods ended January 31, 2009 compared to the same periods in the prior year, primarily due to a pre-tax gain from the sale of a commercial property ($1,873,000) and the forfeiture of a deposit for the purchase of land by a homebuilder who did not exercise a purchase option ($618,000) in the second quarter of 2008, with no similar transactions occurring in the first nine months of 2009. In addition, interest and other revenues were also lower in the third quarter and first nine months of 2009 compared to the same periods in 2008 due to lower cash balances. Real estate commissions and selling expenses decreased $221,000 and $393,000 for the third quarter and nine month periods ended January 31, 2009 compared to the same periods in the prior year, principally due to the reduced land sales. Other operating expenses increased $770,000 and $379,000 for the three and nine month periods ended January 31, 2009 compared to the same periods last year, primarily due to a net favorable $558,000 adjustment to real estate tax expense in the third quarter of 2008 resulting from the finalization of a property tax valuation appeal by AMREP Southwest and a $184,000 adjustment to real estate tax expense in 2009 as a result of receiving the final calendar year 2008 tax bills. General and administrative expenses of Media Services operations increased $317,000 and $257,000 in the third quarter and first nine months of 2009 compared to the same periods in 2008, primarily due to the aforementioned higher consulting fees and computer system integration costs associated with the unification project of the Subscription Fulfillment Services business. Real estate operations and corporate general and administrative expense decreased $77,000 and $190,000 for the third quarter and first nine months of 2009 compared to the same periods last year, primarily due to reduced professional fees. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- During the past several years, the Company has financed its operations from internally generated funds from real estate sales and Media Services operations, and from borrowings under its various lines-of-credit and development loan agreements. 17 Cash Flows From Operating Activities - ------------------------------------ Real estate receivables decreased from $13,124,000 at April 30, 2008 to $4,064,000 at January 31, 2009 reflecting the net effect of (i) the reclassification of approximately $6,530,000 to real estate inventory and $1,125,000 to investment assets from mortgage notes receivable resulting from the Company's acceptance of deeds in lieu of foreclosure related to delinquent mortgage note receivables and (ii) payments received on mortgage notes held by AMREP Southwest offset in part by mortgages notes received by AMREP Southwest in connection with real estate sales that closed during the first nine months of 2009. Media Services operations accounts receivable increased from $45,701,000 at April 30, 2008 to $50,059,000 at January 31, 2009, primarily due to the effect of higher quarter-end billings at January 31, 2009 compared to April 30, 2008 and the timing of payments by customers. Media Services operations accounts receivable include approximately $7,500,000 from a distribution wholesaler customer that suspended normal business activities in February, which amount is subject to adjustment by magazine return activity subsequent to the end of the quarter that may differ from the Company's estimates. No payments of accounts receivable have been received by the Company from this customer after January 31, 2009. Because the potential loss on amounts due from this wholesaler is unable to be estimated, the Company has not provided an allowance for uncollectibility, but it continues to monitor the collectibility of the net receivable and will provide an appropriate allowance if and when deemed necessary (see Notes 3 and 14). Real estate inventory was $81,817,000 at January 31, 2009 compared to $70,252,000 at April 30, 2008. Inventory in the Company's core real estate market of Rio Rancho increased from $63,215,000 at April 30, 2008 to $74,442,000 at January 31, 2009, primarily reflecting the reclassification of mortgage notes receivable to inventory discussed above and the net effect of development spending and land sales. The balance of real estate inventory consisted of properties in Colorado. Property, plant and equipment increased from $28,914,000 at April 30, 2008 to $32,500,000 at January 31, 2009, primarily due to a third quarter warehouse acquisition by the Company, offset in part by normal depreciation charges. Accounts payable and accrued expenses decreased from $98,532,000 at April 30, 2008 to $77,850,000 at January 31, 2009, primarily as a result of the timing of payments due to publishers and vendors. In addition, under a distribution arrangement with one publisher customer of the Newsstand Distribution Services business, that publisher bears the ultimate credit risk of non-collection of related amounts due from the customers to which the Company distributes the publisher's magazines. Accounts receivable subject to this arrangement were netted ($29,662,000 was netted at January 31, 2009 and $22,703,000 was netted at April 30, 2008) against the related accounts payable due the publisher on the accompanying consolidated balance sheets. Cash Flows From Investing Activities - ------------------------------------ Restricted cash of $3,856,000 reflects amounts held in escrow that were received in connection with the sale of investment assets that are identified as "1031 Exchange assets" and which are restricted pending the purchase of identified replacement assets. On November 7, 2008, the Company, through a newly-formed subsidiary of Kable, acquired certain assets of a privately-held product repackaging and fulfillment industry company, including a warehouse. The aggregate purchase price of the assets purchased was approximately $8,500,000, and was financed from working capital, bank borrowings and the assumption of a $4,747,000 mortgage note on the warehouse (see Note 13). 18 Capital expenditures totaled $1,521,000 and $5,662,000 in the first nine months of 2009 and 2008. Capital expenditures in 2009 were primarily for computer hardware and software development expenditures related to the Subscription Fulfillment Services business. Capital expenditures in 2008 were also for computer hardware and software development expenditures related to the Subscription Fulfillment Services business, as well as for certain real estate investment assets. Based in part on discussions with existing lenders, the Company believes that it has adequate cash and financing capability to provide for its anticipated future capital expenditures, subject in all respects to the following discussion about cash flows from financing activities. Cash Flows From Financing Activities - ------------------------------------ AMREP Southwest has a $25,000,000 revolving credit facility with a bank that matures in September 2009. The revolving credit facility had an outstanding balance of $25,000,000 at January 31, 2009 and $24,000,000 at February 28, 2009. At January 31, 2009, AMREP Southwest was in compliance with the facility's covenants. As a result of the extreme volatility in the financial markets, the cost of obtaining money has increased and many lenders have increased interest rates, imposed tighter lending standards, refused to refinance existing debt at maturity on terms similar to current terms and, in some cases, have ceased to provide funding to borrowers. The bank has recently initiated discussions with AMREP Southwest regarding a renewal of the arrangement; however, the bank has also indicated that, due to the credit markets and the real estate economy, it would expect different terms and conditions, including a higher interest rate, in order to extend the line. Kable maintains a bank credit facility aggregating $52,536,000, including revolving credits of $45,000,000 maturing in May 2010 and term borrowings of $7,536,000 maturing in part in December 2009 and the balance in May 2010, which is described in greater detail in the 2008 Form 10-K. The total outstanding balance of the bank credit facility was $12,244,000 at January 31, 2009. The facility requires Kable to comply with a number of covenants, including some based upon its financial performance measured at the end of its fiscal quarters. At January 31, 2009, Kable was in compliance with these covenants. However, as reported in Note 14 to the financial statements, Kable has a net estimated account receivable of approximately $7,500,000 at January 31, 2009 from Anderson News, LLC, a major wholesaler customer of Kable's Newsstand Distribution Services business that has ceased operations and is liquidating, and at this time Kable is unable to estimate the collectibility of the account. The Company believes it is possible that a significant portion of the account will be determined to be uncollectible and that such determination could be made as early as during the Company's current fiscal quarter ending April 30, 2009. Depending on the amount of the reserve that Kable establishes for this or other uncollectible accounts receivable, Kable may become in default of one or more of the covenants under its credit facility, unless the non-compliance is waived by the lender. If Kable is unable to obtain a waiver for any event of default on satisfactory terms, Kable would not be able to borrow funds under the facility until the non-compliance is cured and the lender would be permitted to exercise a number of remedies, including the rights to seek immediate repayment of all outstanding loans. Kable is in discussions with the lending bank, which is monitoring the situation but has not indicated what action, if any, it would take should such a default occur. With respect to the Subscription Fulfillment Services unification project described above in Results of Operations, the Company expects that this project will include a two-to-three year capital expansion program. The Company is still evaluating various alternatives for this expansion, which could require capital expenditures in the range of $15,000,000 to $20,000,000, of which $3,800,000 is contemplated to be provided by AMREP Southwest in the form of an "IRS Section 1031 reinvestment" purchase of an office building that will be leased back to Palm Coast Data ("Palm Coast"), a Kable subsidiary. The Company also estimates that the implementation of this program will result in approximately $6,000,000 19 of non-recurring cash costs for severance, training and transition, facility closings and equipment relocation. To assist in the program, Palm Coast has procured approximately $8,000,000 of actual and potential incentives from the State of Florida and the City of Palm Coast for the project, including cash and employee training grants and tax relief that are largely contingent on existing job retention, new job creation and capital investment. The Company is in various stages of discussions with several possible lenders to provide financing for part of this expansion, with the balance anticipated to be funded from operations. In all of the above cases, there can be no assurance the required financing will be available on satisfactory terms. Future Payments Under Contractual Obligations - --------------------------------------------- The Company is obligated to make future payments under various contracts, including its debt agreements and lease agreements, and is subject to certain other commitments and contingencies. The table below summarizes significant contractual obligations as of January 31, 2009 for the items indicated (in thousands): Less than 1 - 3 3 - 5 More than Contractual Obligations Total 1 year years years 5 years - ----------------------- ----- --------- ----- ----- --------- Notes payable $ 42,395 $ 27,029 $ 10,818 $ 321 $ 4,227 Operating leases and other 24,992 5,233 10,363 6,637 2,759 ----------- -------------- ------------- ------------- -------------- Total $ 67,387 $ 32,262 $ 21,181 $ 6,958 $ 6,986 =========== ============== ============= ============= ==============
The increase in notes payable from April 30, 2008 was due to increased borrowings by AMREP Southwest and Media Services, and to the assumption of a mortgage note payable in connection with the purchase of a warehouse in November 2008 (see Note 13). Operating leases and other includes liabilities of $2,230,000 related to unrecognized tax benefits and related accrued interest recorded in accordance with FIN 48. Refer to Notes 9, 14 and 16 to the consolidated financial statements included in the 2008 Form 10-K for additional information on long-term debt and commitments and contingencies. Pension Plan - ------------ With the recent substantial declines in the global equity and debt markets, there has been a substantial decline in the fair market value of the assets in the Retirement Plan for Employees of AMREP Corporation ("Plan"), from $27,225,000 at April 30, 2008 to approximately $15,623,000 at February 28, 2009. Under current law, funding requirements to the Plan are determined based upon the provisions of the Pension Protection Act of 2006, which generally requires "full funding" (as defined) of defined benefit pension plans to be made over a seven year period. As a result, it is expected that there will be funding requirements from the Company to the Plan beginning in calendar 2010. The amount that may be required to be funded by the Company is not presently determinable, as it will be based upon the fair market value of assets of the Plan as of January 1, 2009 ($18,539,000) as compared to the actuarially computed value of the Plan's vested liabilities at that date, which amount has not yet been determined by the Plan actuary. In addition, the change from April 30, 2008 to April 30, 2009 in the accrued pension liability for the Plan based upon the fair market value of assets compared to the pension benefit obligation as of those dates will be reflected as a component of comprehensive income or loss in the Company's 2009 financial statements. Risk Factors - ------------ In addition to the other information set forth in this report included in Part II, "Item 1A. Risk Factors", the factors discussed in Part I, "Item 1A. Risk Factors" in the 2008 Form 10-K, which could materially affect the Company's 20 business, financial condition or future results, should be carefully considered. The risks described herein and in the 2008 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that currently are deemed to be immaterial also may materially adversely affect the Company's business, financial condition or operating results. Statement of Forward-Looking Information - ---------------------------------------- The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are "forward-looking", including statements contained in this report and other filings with the Securities and Exchange Commission, reports to the Company's shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "projects", "forecasts", "may", "should", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. These risks and uncertainties include, but are not limited to, the risks described above under the heading "Risk Factors". Many of the factors that will determine the Company's future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. The forward-looking statements contained in this report include, but are not limited to, statements regarding the unification project of the Subscription Fulfillment Services business (including the Company's estimated related capital expenditures and incentives anticipated to be received from the State of Florida and the City of Palm Coast), the receivables owing from Anderson News, LLC, future financing requirements and the status of negotiations with the Company's existing lenders, and future pension plan funding obligations. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------- ---------------------------------------------------------- The Company has several credit facilities that require the Company to pay interest at a rate that may change periodically. These variable rate obligations expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. At January 31, 2009, borrowings of $33,999,000 were subject to variable interest rates. Refer to Item 7(A) of the 2008 Form 10-K for additional information regarding quantitative and qualitative disclosures about market risk. Item 4. Controls and Procedures - ------- ----------------------- Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's chief financial officer and the other executive officers whose certifications accompany this quarterly report, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. As a result of such evaluation, the chief financial officer and such other executive officers have concluded that such disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to the 21 Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure. The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system will be met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Changes in Internal Control over Financial Reporting No change in the Company's system of internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------- ----------------- On February 9, 2009, a civil action was commenced in the United States District Court for the Southern District of New York entitled Source Interlink Distribution, LLC, et al. v. American Media, Inc., et al. Source Interlink Distribution, LLC ("Source") is a wholesaler of magazines. It has alleged that magazine publishers and distributors, including Kable Distribution Services, Inc. ("Kable"), which is a wholly-owned subsidiary of the Company, conspired to boycott Source to drive it out of business, and that other wholesalers participated in this effort. It has asserted claims under Section 1 of the Sherman Act (antitrust) for defamation and for tortious interference with its contracts with retailers. Damages have not been quantified. The Company believes that Kable has good defenses to the claims and intends vigorously to defend the lawsuit. However, the lawsuit was commenced very recently and the Company is not in a position to predict its outcome. On March 10, 2009, Anderson News, LLC commenced a civil action against Kable and others. The complaint contains allegations substantially similar to those made by Source. Item 1A. Risk Factors - -------- ------------ As described below, a recent notification that a significant customer of the Company has ceased operations and the impact of the current global financial crisis and condition of credit and capital markets may involve further risks to the Company's business. Kable faces a risk of non-compliance with a financial covenant related to its - -------------------------------------------------------------------------------- bank credit facility, and may be unable to obtain a waiver of such covenant - -------------------------------------------------------------------------------- default. - -------- As reported in Note 14 to the financial statements included in this Quarterly Report, Kable has a net estimated account receivable of approximately $7,500,000 from Anderson News, LLC, which has ceased operations and is in liquidation. At this time, Kable is unable to estimate the collectibility of the account. Kable was in compliance with all covenants in its bank credit facility as of January 31, 2009. However, the Company believes it is possible that a significant amount of the Anderson News, LLC account receivable may ultimately be determined to be uncollectible, that such determination could be made as early as during the Company's current fiscal quarter ending April 30, 2009, and that the effect of this determination on Kable's financial results could be to place Kable in default of its credit facility. If Kable is unable to obtain a waiver for any event of default on satisfactory terms, Kable would not be able to borrow funds under the credit facility until the non-compliance is cured and the lender would be permitted to exercise a number of remedies, including the right to seek immediate repayment of all outstanding loans. Kable may not be able to obtain a waiver of any default that occurs on acceptable terms, on a timely basis or at all. In addition, any waiver may require Kable to pay a fee to the lender under the credit facility or to amend the terms of the credit facility, which could 22 increase its cost of credit and related expenses and adversely impact the Company's results of operations. If Kable fails to obtain a waiver of any default and the lender under the credit facility requires Kable to immediately repay all amounts outstanding under such facility, it would have a material adverse effect on the Company's liquidity, business, financial condition and results of operations. The effects of the current global economic crisis may impact the Company's - -------------------------------------------------------------------------------- business, operating results or financial condition. - --------------------------------------------------- The current global economic crisis has caused a general tightening of the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. The macroeconomic developments could negatively affect the Company's business, operating results or financial condition in a number of ways. For example, current or potential real estate developers may be unable to obtain financing which could cause them to delay, decrease or cancel purchases of land from the Company, and revenues from advertising sources may deteriorate such that magazine publishers cease publishing certain titles and thus no longer have a requirement for the Company's services. The current deterioration of the credit and capital markets may adversely impact - -------------------------------------------------------------------------------- the Company's ability to obtain financing on acceptable terms, which may hinder - -------------------------------------------------------------------------------- or prevent the Company from meeting its future operational and capital needs. - ----------------------------------------------------------------------------- Global financial markets have been experiencing extreme volatility and disruption, and the debt and equity capital markets have been exceedingly distressed. These issues have made, and will likely continue to make, it difficult to obtain financing. Also, as a result of the concerns about the stability of financial markets, the cost of obtaining money from the credit markets has increased, as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity at all or except on terms less favorable than those of the existing debt, and reduced or, in some cases, ceased to provide funding to borrowers. Moreover, even if lenders are willing and able to provide adequate funding, interest rates may rise in the future and therefore increase the cost of borrowing. As a result, the Company may be unable to obtain adequate financing for its operating needs or for its anticipated future capital expenditures. Item 6. Exhibits - ------- -------- Exhibit No. Description - ----------- ----------- 10.1 Amended and Restated Distribution Agreement dated as of July 1, 2008 between Kappa Publishing Group, Inc. and Kable Distribution Services, Inc.* 31.1 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.3 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934. 32 Certification required pursuant to 18 U.S.C. Section 1350. *Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934. 23 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 12, 2008 AMREP CORPORATION (Registrant) By: /s/ Peter M.Pizza ---------------------------------------------- Peter M. Pizza Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 24 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 10.1 Amended and Restated Distribution Agreement dated as of July 1, 2008 between Kappa Publishing Group, Inc. and Kable Distribution Services, Inc.* - Filed Herewith 31.1 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934 - Filed herewith. 31.2 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934 - Filed herewith. 31.3 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934 - Filed herewith. 32 Certification required pursuant to 18 U.S.C. Section 1350 - Filed herewith. *Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934. 25 EX-10 2 exh10_0309.txt EXHIBIT 10.1 CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2 Certain portions, indicated by [***] of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934. The omitted portions have been filed separately with the Securities and Exchange Commission. AMENDED AND RESTATED DISTRIBUTION AGREEMENT THIS AGREEMENT is made and entered into at Fort Washington, Pennsylvania as of the 1st day of July, 2008 by and between KAPPA PUBLISHING GROUP, INC., a Delaware corporation, whose place of business is at 6198 Butler Pike, Blue Bell, Pennsylvania 19422 (hereafter referred to as PUBLISHER) and KABLE DISTRIBUTION SERVICES, INC., a Delaware corporation, whose place of business is at Suite 4C, 14 Wall Street, New York, NY 10005 (hereafter referred to as DISTRIBUTOR). W I T N E S S E T H - - - - - - - - - - WHEREAS, PUBLISHER and DISTRIBUTOR are parties to an Amended and Restated Distribution Agreement dated as of April 30, 2006, as amended (as so amended, the "Original Distribution Agreement") which provides for the distribution by DISTRIBUTOR of PUBLISHER's titles; and WHEREAS, PUBLISHER and DISTRIBUTOR wish to amend certain provisions of the Original Distribution Agreement; and WHEREAS, PUBLISHER and DISTRIBUTOR have agreed to amend and restate the Original Distribution Agreement in its entirety to reflect the changes required by the parties; and WHEREAS, PUBLISHER and DISTRIBUTOR agree that the provisions of this Agreement shall apply solely to Publications published by PUBLISHER and its Affiliates. 1 NOW THEREFORE, for and in consideration of the mutual covenants herein contained, and other good and valuable consideration, the parties hereby agree as follows: 1. DEFINITIONS ----------- (a) "Affiliate" of any Person shall mean any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, shall mean the power to direct the management, policies or investments of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. (b) "Average Net Sale Percentage" with respect to each issue of a Publication shall mean the quotient of the Net Billings with respect to the Measurement Issues (determined by reference to the Settlement Payment Publisher Statements, as defined in Paragraph 15, or comparable statements, as the case may be, as referred to in the definition of Measurement Issues) divided by the Publisher's Gross Billings with respect to such Measurement Issues (similarly determined). When the context requires, Average Net Sale Percentage shall be calculated separately for one or more Distributor's Sales Outlets, or for all Distributor's Sales Outlets combined. (c) "Change of Control" with respect to any Person shall mean (i) That any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act (x) becomes the "beneficial owner" as defined in Rule 13d-3 promulgated under the Exchange Act of more than 50%, of the then outstanding voting securities of such Person, or (y) acquires by proxy, contract or otherwise the right to vote for the election of directors (or similar such managing individuals), for any merger or consolidation of such Person, or for any other matter or question more than 50% of the then outstanding voting securities of such Person; or 2 (ii) That during any period of twenty-four (24) consecutive months (not including any period prior to the date of this Agreement), Present Directors and/or New Directors cease for any reason to constitute a majority of the Board of Directors (or similar governing body) of such Person. For purposes of the preceding sentence, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board of Directors (or similar governing body) of such Person and "New Directors" shall mean any director whose election by the Board of Directors (or similar governing body) of such Person or whose nomination for election by such Person's stockholders was approved by a vote of a least two-thirds of the directors then still in office who were Present Directors or New Directors. (d) "Completion of Shipping" with respect to each issue of a Publication shall mean the date the PUBLISHER's printer completed shipping all copies of such issue to Distributor's Sales Outlets in accordance with DISTRIBUTOR's shipping instructions as stated on the Printer's Completion Notice. (e) "Cover Price" with respect to each issue of a Publication shall mean the suggested retail selling price of such issue specified on the cover of each copy thereof. 3 (f) "Distributor's Estimated Final Net Billings" with respect to each issue of a Publication shall mean the product of the Average Net Sale Percentage of such Publication (using the Completion of Shipping as the calculation date) multiplied by the Publisher's Billing Price of such issue and multiplied by the number of copies of such issue shipped in accordance with the Printer's Completion Notice; provided, however, that Returns of issues of such Publication, the On-Sale Dates of which are prior to those of the Measurement Issues, which have not previously been accounted for may be deducted in computing Distributor's Estimated Final Net Billings. In the event there are no Measurement Issues of such Publication as of such date, the Average Net Sale Percentage for purposes of determining Distributor's Estimated Final Net Billings shall mean the Average Net Sale Percentage of other Publications which have editorial content similar to that of the Publication (e.g., all Word-Find Publications, all Crossword Publications, or all Wrestling Publications), and if there are no such similar Publications, Average Net Sale Percentage for purposes of determining Distributor's Estimated Final Net Billings shall mean the Average Net Sale Percentage of all Publications with the same publication frequency as that of such Publication as of such Completion of Shipping, and if there are no Publications with the same publication frequency as that of such Publication, Average Net Sale Percentage for purposes of determining Distributor's Estimated Final Net Billings shall mean the Average Net Sale Percentage of all Publications. When the context requires, Distributor's Estimated Final Net Billings shall be calculated separately for Foreign Distributor's Sales Outlets as a group and for non-Foreign Distributor's Sales Outlets as a group. (g) "Distributor's Sales Outlets" shall mean customers of DISTRIBUTOR. (h) "Effective Date" shall mean July 1, 2008 4 (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (j) "Exchange Rate" shall mean the cash (as contrasted with the forward) rate at which a currency other than U.S. Dollars is convertible into U. S. Dollars, as published in the Exchange Rates table (or comparable table, if renamed) of the Wall Street Journal, or if such information is no longer published in such newspaper, as published by Telerate Systems, and if such information is no longer published by Telerate Systems, by such reputable financial information publishing company as may be mutually agreeable to the parties. (k) "Measurement Issues" with respect to a calculation date and a Publication shall mean (i) the last three (3) issues of such similarly priced Publication if such Publication is published monthly or more frequently, (ii) the last two (2) issues of such similarly priced Publication if such Publication is published at least quarter annually but not as frequently as monthly, and (iii) the last issue of such similarly priced Publication if such Publication is published less frequently than quarter annually, in each such case as to which a Settlement Payment Publisher Statement (as defined in Paragraph 15), or comparable such statement if rendered by another distributor or pursuant to another distribution agreement, has been issued prior to such calculation date. In any case where Settlement Payment Publisher Statements (or such comparable statements as the case may be) for fewer than the indicated number of issues are available, the Measurement Issues shall refer to such fewer issues as are available" (l) "Net Billings" with respect to each issue of a Publication shall mean Publisher's Gross Billings with respect to such issue, less Return Credits with respect to such issue. (m) "Notice" shall mean a communication between the parties which conforms to the requirements of Paragraph 25. 5 (n) "Off-Sale Date" with respect to each issue of a Publication shall mean the On- Sale Date of such Publication's next issue, or such other date as designated by PUBLISHER that all copies of such issue are scheduled to be removed from retail outlets for sale to the general public. (o) "On-Sale Date" with respect to each issue of a Publication shall mean the date designated by PUBLISHER that such issue is scheduled to be placed in retail outlets for sale to the general public. (p) "Outside Deadline for Returns" with respect to each issue of a Publication shall mean [***] days after the Off-Sale Date of such issue for non-Foreign Distributor's Sales Outlets, and [***] days after the Off-Sale Date of such issue for Foreign Distributor Sales Outlets. (q) "Person" shall mean an individual, a corporation, a partnership, an association, a joint stock company, a joint venture, an estate, a trust, an unincorporated organization or a government, governmental unit or any subdivision thereof or any other entity. (r) "Printer's Completion Notice" with respect to each issue of a Publication shall mean a notice delivered to DISTRIBUTOR and executed by an appropriate representative of the printer of such issue, which shall specify the number of copies of such issue shipped in accordance with DISTRIBUTOR'S instructions, and the date of completion of such shipping. (s) "Publisher's Billing Price" with respect to each copy of each issue of a Publication shall be in an amount equal to [***] of Cover Price of all Publications. (t) "Publisher's Gross Billings" with respect to each issue of a Publication shall mean the product of Publisher's Billing Price with respect to 6 such issue multiplied by the number of copies distributed hereunder in accordance with the Printer's Completion Notice with respect to such issue. (u) "Publication(s)" shall mean the title(s) listed on Schedule "A" attached hereto including any "one-shots," annuals or titles derived therefrom, as amended from time to time to include any additional titles subsequently covered by the terms hereof as provided herein or as provided by agreement of the parties. (v) "RDA" shall mean a retail display allowance offered by PUBLISHER pursuant to a program to retailers engaged in the sale of PUBLISHER's Publication(s) for (i) each copy sold of each Publication and/or (ii) a specified position in a retailer sales fixture. (w) "Returns" with respect to each issue of a Publication shall mean any and all copies of such issue returned for credit by Distributor's Sales Outlets pursuant to Paragraph 9 hereof and for which DISTRIBUTOR has issued such a credit. (x) "Return Credit" with respect to each issue of a Publication shall mean the product of Publisher's Billing Price with respect to such issue multiplied by the number of Returns of such issue. (y) "Territory" shall mean the United States of America and all its possessions, all Army and Fleet Post Office designations, and the Dominion of Canada, and the rest of the world. 2. GRANT OF RIGHTS --------------- (a) Except as otherwise provided in subparagraph (b) of this Paragraph 2 PUBLISHER hereby gives and grants to the DISTRIBUTOR, effective as of the Effective Date and during the term hereof the sole and exclusive right to purchase from PUBLISHER and to resell and distribute throughout the Territory, the Publication(s). All purchases shall be subject to DISTRIBUTOR's right to 7 receive Return Credits for Returns as set forth in Paragraph 9 hereof. (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 2 to the contrary, PUBLISHER reserves the right to (i) Sell copies of the Publication(s) to subscribers at subscription prices; (ii) Distribute, give, or deliver to individuals without cost or compensation copies of any of the Publication(s) as part of a promotional campaign for such Publication(s); and (iii) Sell copies of the Publication(s), directly or indirectly, to chains of retailers not serviced by DISTRIBUTOR or Distributor's Sales Outlets on the Effective Date; provided, however, that if during the term hereof, such service is commenced to substantially all of the retailers in any such chain by DISTRIBUTOR or Distributor's Sales Outlets, and if DISTRIBUTOR agrees, after deducting any RDA payment obligations with respect to each issue of each Publication sold at such retailers, to remit to PUBLISHER with respect thereto the same amount of money as PUBLISHER had been receiving with respect to such sales prior thereto, PUBLISHER shall commence selling exclusively to DISTRIBUTOR for resale to the retailers in such chain or to the Distributor's Sales Outlets for ultimate resale to such retailers, and pursuant to the terms hereof (except as such payment amount by DISTRIBUTOR to PUBLISHER may be inconsistent with that set forth on Schedule "A" attached hereto as a result 8 of the terms of this section (iii)) upon expiration of any then existing distribution agreement with respect to such chain(s) of retailers. 3. TERM AND EVENTS OF DEFAULT -------------------------- (a) Except as otherwise provided in subparagraphs (b), (d) or (f) of this Paragraph 3, the term of this Agreement shall be for a period commencing on the Effective Date, and ending on June 30, 2011. The rights and obligations of the parties under this Agreement shall include and be deemed to include all issues of all Publication(s), the respective On-Sale Date(s) of which occur prior to the termination hereof ("Covered Issues"). Any and all of the respective rights and obligations of the PUBLISHER and DISTRIBUTOR under this Agreement shall survive its termination for the purposes of distributing Covered Issues, and of handling and crediting Returns and making payments, adjustments and credits with respect to Covered Issues. Termination of this Agreement shall not affect any right of either party to receive any money owed by the other hereunder, the amount of which shall be calculated in the manner which would have otherwise been required hereby, absent such termination. (b) Notwithstanding any other provision of this Agreement to the contrary, either party may terminate this Agreement upon thirty (30) days' Notice to the other upon the occurrence or existence of an Event of Default by the other party of the type referred to in subparagraph (c)(i), (ii) or (vii) of this Paragraph 3; or upon three (3) days' Notice to the other upon the occurrence or existence of an Event of Default by the other party of the type referred to in subparagraph (c)(iii), (iv), (v), or (vi) of this Paragraph 3, or upon the failure of a party to pay an arbitration award within the time period prescribed in subparagraph 28(c). 9 (c) For purposes of this Agreement, each of the following events shall constitute an Event of Default by the party as to which such event refers or pertains: (i) any representation or warranty made by such party herein or in any written statement or written representation shall prove to have been incorrect when made in any respect material to this Agreement; or (ii) Such party shall fail to perform in any material respect any term, covenant or agreement contained in this Agreement (other than those set forth in Paragraph 15, those set forth in subparagraph 24(b), and those subject to a pending dispute being resolved pursuant to the terms of Paragraph 28) on its part to be performed or observed if such a failure shall remain unremedied for [***] days after Notice thereof from the other party, unless such failure cannot reasonably be expected to be remedied in such [***] day period, in which case such party shall fail within such [***] day period to commence such remedy and or proceed diligently with respect thereto; provided, however, that in no event shall any such cure period extend beyond [***] days after such Notice; or (iii) Such party shall generally be unable to pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or a proceeding shall be instituted by or against a party seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for 10 relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property if any such involuntary proceeding is not dismissed within sixty (60) days; or such party shall take any corporate action to authorize any of the actions set forth above in this subsection (iii); or (iv) any judgment creditor shall have commenced an enforcement proceeding against such party pursuant to a judgment or order of a court of competent jurisdiction after lawful service for the payment of money (not fully covered by insurance) in excess of Two Hundred Fifty Thousand Dollars ($250,000) which enforcement proceeding was not stayed prior to the seizure of any such party's assets, which seizure was not reversed by the timely filing of an appeal thereof. For purposes of this section (iv) the creation of a lien by entry of such a judgment or order shall not itself constitute such a seizure. For purposes of this Agreement, each of the following events shall constitute an Event of Default by DISTRIBUTOR: (v) DISTRIBUTOR shall default, violate, or be in breach of any loan document which provides, or which together with other such loan documents provides, working capital or accounts receivable financing for DISTRIBUTOR or DISTRIBUTOR's business and such default, violation, or breach results in the termination of such financing at a time when no such replacement financing or working capital is available to DISTRIBUTOR in amounts comparable to that terminated; 11 (vi) Each of the events constituting an Event of Default as set forth in subparagraph (e)(ii)(E) of this Paragraph 3; and (vii) DISTRIBUTOR shall fail [***] times in any twelve (12) consecutive month period to perform in any material respect its obligations set forth in subparagraph 24(b), and such failure shall remain uncured for [***] days after Notice thereof from PUBLISHER; or DISTRIBUTOR shall fail any single time to perform in any material respect its obligations set forth in subparagraph 24(b) and as to which DISTRIBUTOR shall have failed to make reasonable efforts to commence a cure thereof during the [***] day period after Notice of such failure is given by PUBLISHER to DISTRIBUTOR. (d) Notwithstanding the provisions of subparagraph (a) of this Paragraph 3 to the contrary, the term of this Agreement shall be automatically extended beyond the June 30, 2011 termination date referred to in such subparagraph (a) for an extension period of three (3) years; provided, Publisher agrees in writing to such extension 180 days prior to the expiration of the then current term. (e) (i) Notwithstanding any language to the contrary in the balance of this Paragraph 3, PUBLISHER and DISTRIBUTOR agree that the provisions of this subparagraph (e) shall exclusively govern with regard to the procedures for collection of any sum actually or allegedly due from DISTRIBUTOR to PUBLISHER under any of the provisions of this Agreement. Accordingly, no alleged or actual failure by DISTRIBUTOR to make any payment to PUBLISHER shall in any manner constitute an Event of Default except as provided in section (ii)(E) of this subparagraph (e). 12 (ii) The following procedures shall govern that portion of any Initial Advance Payment, Settlement Payment, or GST refund as to which there is no dispute or contest between the parties: (A) If PUBLISHER shall not have received DISTRIBUTOR's check in the amount determined by DISTRIBUTOR to be owed to PUBLISHER as an Initial Advance Payment or as a Settlement Payment or as a refund of GST net of deductions as solely determined by DISTRIBUTOR pursuant to the terms of Paragraph 15, ("Missing Check") on or before the [***] business day after it was to have been paid in accordance with the provisions of subparagraph 15(a)(i), 15(a)(ii), or 15(k) as applicable (the "Mailing Date"), PUBLISHER may give Notice to DISTRIBUTOR identifying the Publication(s) and Mailing Date(s) for which there is a Missing Check ("Notice of Non-Receipt"). (B) If PUBLISHER shall not have received a Missing Check on or before the [***] business day after its Mailing Date, PUBLISHER may give Notice to DISTRIBUTOR of nonpayment with respect to such Missing Check ("Notice of Non- Payment") on or after the [***] business day after the giving of a Notice of Non-Receipt with respect thereto. (C) DISTRIBUTOR shall wire funds to replace any Missing Check on or before the second business day after the Notice of Non-Payment with 13 respect to such Missing Check was given to DISTRIBUTOR ("Delayed Payment Date") unless such Missing Check was actually received by PUBLISHER on or before such Delayed Payment Date and a receipt therefor, signed by a PUBLISHER representative, shall have been obtained by DISTRIBUTOR. (D) If PUBLISHER shall have given DISTRIBUTOR a Notice of Non-Payment and a Notice of Non-Receipt with respect to a Missing Check, and if DISTRIBUTOR shall fail to wire funds to PUBLISHER in the amount of such Missing Check on or before the Delayed Payment Date in accordance with the terms of subsection (C) of this section (ii), PUBLISHER may give Notice to DISTRIBUTOR of the Final Opportunity to Cure Default (the "Final Notice"). DISTRIBUTOR shall wire funds in the amount of the Missing Check on or before the [***] business day after the Final Notice was given (the "Outside Date"). (E) It shall constitute an Event of Default, if (x) PUBLISHER shall have given the Notices required in subsections (A), (B), and (D) of this section (ii), and if DISTRIBUTOR shall fail to wire funds to PUBLISHER in the amount 14 of a Missing Check as to which a Final Notice has been given on or before the Outside Date; or (y) If in any consecutive twelve (12) month period, PUBLISHER shall have given the Notices required in subsections (A) and (B) of this section (ii) and DISTRIBUTOR shall fail to mail its check in the amount as an Initial Advance Payment or as a Settlement Payment or as a GST refund determined by DISTRIBUTOR to be owed PUBLISHER net of deductions as solely determined by DISTRIBUTOR pursuant to the terms of Paragraph 15 on the applicable Mailing Date or shall fail to wire funds to PUBLISHER to replace the amount of such Missing Check on or before its Delayed Payment Date (either such occurrence, a "Late Payment Event") a number of times equal to the greater of (I) the number of Publications covered by this Agreement on the day of the Late Payment Event, or (II) [***]. A Late Payment Event may not be counted towards an Event of Default if PUBLISHER did not send DISTRIBUTOR Notices of Non-Receipt and Non-Payment related thereto in accordance with the terms of this subparagraph (e). There shall be rebuttable 15 presumptions that a check payable to the order of PUBLISHER which was produced by DISTRIBUTOR in the ordinary course of its business was actually mailed the day of such production, and that a negotiable check payable to the order of PUBLISHER dated on or before the Mailing Date which was actually received by PUBLISHER within [***] business days of the Mailing Date was mailed on the Mailing Date. (F) Notwithstanding the foregoing, in no circumstances shall an Event of Default be deemed to have occurred unless the Missing Check is in the amount of [***] or more, in which case any such unpaid amount shall be governed by the terms of section (iii) of this subparagraph (e). Also, it shall not constitute an Event of Default if the amount shown to be due on a Publisher Statement (as hereinafter defined) is equal to the amount of DISTRIBUTOR's check tendered to PUBLISHER in payment with respect thereto. (iii) The following procedures shall govern any payment as to which there is a dispute or contest between the parties. Any claim by PUBLISHER (A) that the amount paid by DISTRIBUTOR as an Initial Advance Payment or Settlement Payment as reduced by deductions taken therefrom by DISTRIBUTOR was incorrect; (B) that the information shown on a Publisher Statement was incorrect; 16 (C) that an Initial Advance Payment or Settlement Payment was not made because the information shown on a Publisher Statement was incorrect; (D) that DISTRIBUTOR's demand for payment pursuant to subparagraph 15(e) or (h) is incorrect; (E) for Missing Checks of less than [***] each or (F) for any alleged non-payment by DISTRIBUTOR other than as provided in section (ii) of this subparagraph (e), shall be subject to the dispute resolution provisions of Paragraph 28. (iv) Each Notice given by PUBLISHER to DISTRIBUTOR pursuant to the terms of this subparagraph (e) shall be clearly marked with the boldface legend, "NOTICE PURSUANT TO NON-PAYMENT PROCEDURES OF DISTRIBUTION AGREEMENT"; shall not be included with any other information being communicated to DISTRIBUTOR other than another Notice given pursuant to the terms of this subparagraph (e); shall identify the Publications and Mailing Date to which it refers; and in the case of a Notice of Non-Payment and a Final Notice, the necessary instructions by which DISTRIBUTOR is to wire the necessary funds to PUBLISHER. Notice failing to comply with the terms of this section (iv) shall be deemed null and void and not to have been delivered to DISTRIBUTOR. (f) Notwithstanding any other provision of this Agreement to the contrary, PUBLISHER may terminate this Agreement if at any time during the term hereof either 17 (i) some or all of the voting securities of DISTRIBUTOR or all or substantially all of the assets of DISTRIBUTOR are sold to (A) a distributor in the business of buying magazines from publishers for resale to, or acting as an agent for publishers in the sale or other distribution of magazines to, wholesalers or retailers of magazines (a "Competitor") or (B) to a Person which is not a Competitor, but which has a net worth or shareholders, equity of less than Thirty Million Dollars ($30,000,000); or (ii) DISTRIBUTOR merges or consolidates with or into (A) any Competitor or (B) any Person of the type described in subparagraph (f)(i)(B) of this Paragraph 3 . To terminate the Agreement pursuant to the terms of this subparagraph (f), PUBLISHER shall give Notice to DISTRIBUTOR of such termination not more than ninety (90) days after the date of any such sale, merger, or consolidation. Such Notice shall specify a specific termination date (which may but shall not be required to be within such 90-day period) not less than fifteen (15) nor more than forty-five (45) days after the date of such Notice. 4. PUBLISHER REPRESENTATIONS ------------------------- 18 (a) PUBLISHER represents and warrants that (i) it is the sole and exclusive owner of all rights, including but not limited to, copyrights, titles, trademarks, tradenames, trade dress, logos and formats, in and to the Publication(s) (collectively, the "Rights")and that the Rights are not subject to any liens or encumbrances of any nature other than as set forth on Schedule "C" attached hereto; (ii) the rights herein granted to DISTRIBUTOR have not been granted to any other person, firm, or corporation with respect to any portion of the term hereof; (iii) it has the right and authority to enter into this Agreement and to perform the obligations hereunder to be performed by PUBLISHER; (iv) there are no existing contracts, agreements or other arrangements which in any way whatsoever prevent or interfere with the PUBLISHER's making and entering into this Agreement or performing hereunder; and (v) that to the best of PUBLISHER's knowledge, there are no suits or proceedings pending or threatened against or affecting PUBLISHER which, if adversely determined, would impair the rights herein granted to DISTRIBUTOR or prevent PUBLISHER from performing hereunder. (b) PUBLISHER represents and agrees that all issues of the Publication(s) shall conform substantially to the respective existing copies thereof exhibited by PUBLISHER to DISTRIBUTOR; provided, however, that PUBLISHER may change the size, page count, contents, format, or Cover Price of any Publication from time to time during the term hereof if PUBLISHER believes that any such change will inure to the best interests of any of the Publication(s) or of PUBLISHER. 5. FIRST OPTION ------------ 19 (a) DISTRIBUTOR shall have the first option to purchase from PUBLISHER and to resell and distribute any and all newly published periodicals or publications intended to be published by PUBLISHER during the term of this Agreement on the same terms and conditions as set forth in this Agreement. DISTRIBUTOR shall also have the first option to purchase from PUBLISHER and to resell and distribute any and all additional periodicals or publications acquired by and intended to be published by PUBLISHER during the term of this Agreement, either (i) after the expiration of any distribution contract with any other party covering such periodicals and publications and thereafter on the same terms and conditions as set forth in this Agreement or (ii) as set forth in any other distribution contract then in effect with any other distributor covering the distribution of such periodicals and publications until the expiration of its then current term and thereafter on the same terms and conditions as set forth in this Agreement. PUBLISHER shall promptly give DISTRIBUTOR Notice of its intention to publish and distribute any such additional periodicals or publications and DISTRIBUTOR shall within fifteen (15) days after receipt of such Notice, advise PUBLISHER of whether it is willing to distribute such additional periodicals or publications. If DISTRIBUTOR is willing to do so, each such periodicals or publications shall thereafter be deemed to be a Publication, and shall be governed by the terms hereof. If DISTRIBUTOR is unwilling to distribute such additional periodicals or publications, PUBLISHER shall have the right and option to have each such periodicals or publications thereafter distributed by another distributor, without liability to DISTRIBUTOR hereunder. (b) In the event PUBLISHER exercises its option to have the additional periodicals or publications referred to in subparagraph (a) of this Paragraph 5 20 which DISTRIBUTOR is unwilling to distribute, distributed by another distributor, and PUBLISHER receives on a net basis, less for sale of issues of such additional periodicals or publications from such other distributor performing the same type of distribution services than it would have received from DISTRIBUTOR pursuant to the terms of this Agreement, DISTRIBUTOR shall pay such difference to PUBLISHER thirty (30) days after DISTRIBUTOR's receipt of a copy of each settlement statement received by PUBLISHER from such other distributor, subject to DISTRIBUTOR's right to audit same and being supplied with all information reasonably necessary to calculate and/or verify any such sums owed. Notwithstanding the foregoing, no such sums shall be due PUBLISHER (i) if the financial arrangements between PUBLISHER and such other distributor is the result of bad faith or collusion between PUBLISHER and such other distributor, or (ii) with respect to any time period after the termination of this Agreement. When the term of any distribution agreements with any such other distributor has been completed and prior to any renewal or new term's taking effect, if this Agreement has not then been terminated, PUBLISHER shall again offer DISTRIBUTOR the right to distribute such additional periodicals or publications on the same terms and conditions as set forth in this Agreement, and if DISTRIBUTOR remains unwilling to distribute such additional periodicals or publications, DISTRIBUTOR shall continue to pay the amounts required pursuant to the terms of this subparagraph (b). If PUBLISHER fails to offer DISTRIBUTOR the right to 21 distribute such additional periodicals or publications(s) no sums shall be due PUBLISHER pursuant to the terms of this subparagraph (b) from and after the termination date of such other distribution agreement. 6. NUMBER OF COPIES, FREQUENCY, AND COVER DESIGNATIONS --------------------------------------------------- (a) The number of copies of each issue of each Publication to be printed shall be as PUBLISHER and DISTRIBUTOR shall mutually agree upon, and in the absence of such agreement, the product of four (4) multiplied by the aggregate Publisher's Gross Billings and divided by the aggregate Publisher's Billing Prices for the Measurement Issues of such Publication, determined as of the date immediately prior to the making of the print order. (b) PUBLISHER agrees to deliver, or promptly cause to be delivered, the specified number of copies of each issue of the Publication(s) with the assigned bipad number and Universal Product Code Symbol to each Distributor's Sales Outlet designated by DISTRIBUTOR in accordance with DISTRIBUTOR's shipping instructions. (c) PUBLISHER may, without incurring any liability to DISTRIBUTOR on account thereof, in the exercise of its sole discretion, change the frequency of publication of any of the Publication(s) from time to time during the term hereof, and may, in the exercise of its sole discretion, determine to cease publication or production of any Publication either temporarily or permanently. 7. TRANSPORTATION AND RELATED COSTS -------------------------------- PUBLISHER shall pay directly all transportation and insurance costs. Canadian GST, import-export charges or tariffs and other duties, relating to the shipment of each issue of the Publication(s) to Distributor's Sales Outlets shall be advanced by DISTRIBUTOR and deducted from amounts payable to PUBLISHER 22 as Settlement Payments (except as to Canadian GST which shall be deducted from Initial Advance Payments and repaid to PUBLISHER by DISTRIBUTOR [***] days thereafter). 8. PUBLISHER'S BILLING PRICE; FOREIGN CURRENCY ------------------------------------------- (a) The Publisher's Billing Price shall initially be calculated based on the Cover Price of the Publication as set forth on Schedule "A" attached hereto; provided, however, that upon any change in the Cover Price of a Publication, the Publisher's Billing Price shall correspondingly change automatically as to issues with the changed Cover Price so that the ratio of Publisher's Billing Price to Cover Price shall remain consistent with that determined by reference to Schedule "A," as amended to the date of such change. (b) All moneys which may be due to PUBLISHER pursuant to the terms of this Agreement shall be paid in U. S. Dollars. All amounts owed by DISTRIBUTOR to PUBLISHER for sales in Canada or in a Foreign country shall be calculated at the Exchange Rate as of the third day prior to the date of any such payment. 9. RETURNS ------- (a) DISTRIBUTOR has the option and is authorized to accept as Returns from Distributor's Sales Outlets whole copies, front covers, headings of front covers, and affidavits or statements of returns including those electronically transmitted, of the Publication(s). Except as set forth in subparagraph (c) of this Paragraph 9, DISTRIBUTOR has the exclusive right to determine the method of return from Distributor's Sales Outlets. DISTRIBUTOR is specifically authorized by PUBLISHER to destroy or arrange for the destruction of said Returns at any time after receiving same in any manner deemed suitable by DISTRIBUTOR, unless at least thirty (30) days prior to the On-Sale Date of any issue of the 23 Publication(s), PUBLISHER shall have given DISTRIBUTOR Notice in writing of PUBLISHER's request that the Returns of such issue be held for thirty (30) days after the date of the Settlement Payment with respect thereto so that PUBLISHER can audit such Returns at its own cost and expense. Such audit and count must be made by PUBLISHER during such thirty (30) day period at the particular place of storage thereof maintained at such time by DISTRIBUTOR, or at PUBLISHER's request, by particular Distributor's Sales Outlets. PUBLISHER agrees not to request more than one such audit per year per Publication unless, as a result of two (2) or more prior such audits, substantial discrepancies were discovered by PUBLISHER. (b) In the event that DISTRIBUTOR has not received all Returns of any issue(s) distributed hereunder from any of the Distributor's Sales outlets because such outlet (i) is subject to the appointment of a receiver, (ii) is adjudicated a bankrupt after filing of a petition of voluntary or involuntary bankruptcy, (iii) is reorganized or managed by a trustee or committee of creditors under the Federal Bankruptcy Act, (iv) is dissolved, terminated, or no longer in business, (v) is destroyed by fire, flood or other disaster, or (vi) is unable to return all unsold copies of any such issue due to strikes, lockouts or other labor disputes, then DISTRIBUTOR shall be entitled to charge PUBLISHER for Returns from such Distributor's Sales Outlet in an amount equal to the 24 product of the difference between one (1) and the Average Net Sale Percentage with respect to the Measurement Issues (calculated as of the earliest date related to the event described in this subparagraph (b) giving rise to the inability to receive all such Returns and calculated separately with respect to the Distributor's Sales outlets as to which any such event applies) multiplied by the number of copies received by such Distributor's Sales Outlet for such issue(s). Nothing contained in this subparagraph (b) shall be or be deemed to be a limitation on the provisions of Paragraph 21 with respect to copies of any issue of a Publication for which DISTRIBUTOR is required to bear any losses from uncollectible accounts, or the fees, costs, or expenses incurred for attempted collection thereof. (c) In the event PUBLISHER desires to receive whole copy Returns, Notice of the quantities thereof desired and the address to which such whole copy Returns shall be sent shall be supplied to DISTRIBUTOR not less than thirty (30) days prior to the On-Sale Date of such issue. PUBLISHER shall pay DISTRIBUTOR at the rate of [***] per copy for packing and handling costs for whole copy returns received by DISTRIBUTOR, and PUBLISHER shall reimburse DISTRIBUTOR for all direct costs incurred by DISTRIBUTOR, including all shipping costs, all container costs, and all costs charged by Distributor's Sales Outlets for arranging, receiving and delivering such whole copy Returns. Upon receipt of such Notice requesting whole copy returns, the sole obligation of DISTRIBUTOR in this regard shall be to make written request for the same from Distributor's Sales Outlets, it being understood and agreed that nothing herein contained shall require DISTRIBUTOR to take any other action with respect to such request. 10. RDA --- (a) DISTRIBUTOR is authorized to offer on PUBLISHER's behalf PUBLISHER's RDA Program. PUBLISHER agrees to delineate the terms, provisions, and limitations thereof, and to execute any documents reasonably necessary in connection therewith. PUBLISHER may, on a prospective basis, discontinue any such RDA Program at any time upon thirty (30) days' Notice to DISTRIBUTOR, 25 (b) PUBLISHER shall act on its own account or designate an agent to pay all amounts due under the RDA Program and PUBLISHER shall pay to such agent on demand any and all amounts paid or due to be paid by such agent on PUBLISHER's behalf to retailers participating in such RDA Program. DISTRIBUTOR agrees to serve as such agent, if requested to do so by PUBLISHER in writing. Even if not so designated, DISTRIBUTOR shall provide the information and support otherwise required pursuant to the terms of this Paragraph 10 without charge. (c) All RDA payments on behalf of PUBLISHER shall be combined with payments due to retailers from Affiliates of PUBLISHER and will be paid by such paying agent. (d) PUBLISHER shall provide DISTRIBUTOR with blank checks on a form mutually agreeable to PUBLISHER and DISTRIBUTOR so that DISTRIBUTOR can produce the checks for signature and mailing by such agent to the retailers or their consultants. The checks shall show data consistent with that provided by DISTRIBUTOR to retailers for comparable programs offered by other publisher clients administered by DISTRIBUTOR. Alternatively, at PUBLISHER'S request and option, DISTRIBUTOR shall, in lieu of drawing and producing such checks, deliver to PUBLISHER (or PUBLISHER'S agent) all such information as is available to DISTRIBUTOR in such electronically encoded form as is used by DISTRIBUTOR in producing such checks. (e) DISTRIBUTOR shall issue an RDA claim form to participating retailers on PUBLISHER'S behalf in a form reasonably acceptable to DISTRIBUTOR and PUBLISHER. When the claim forms are received from the participating retailers DISTRIBUTOR will process them in the same manner as all other claims received by DISTRIBUTOR 26 for its other publisher clients, including all audit programs, and review and verification procedures used by DISTRIBUTOR. RDA analytical reports will be produced by DISTRIBUTOR in the same manner as is done for other publisher clients of DISTRIBUTOR as to title, issue, retailer and summaries of all claims by title and issue and check registers for the payments to be made. (f) DISTRIBUTOR is authorized to offer on PUBLISHER's behalf PUBLISHER's Advance RDA Program to the retailers approved in writing by PUBLISHER and participating in such Advance RDA Program. The Advance RDA Program will be administered for PUBLISHER's issues subject to the Advance RDA Program (the "Advance RDA Issues") in accordance with the following terms, provisions, and limitations: (i) The initial Advanced RDA (the "Advanced RDA") will be based on final sales of issues on sale as provided to PUBLISHER by DISTRIBUTOR. PUBLISHER will calculate and provide to DISTRIBUTOR in writing the initial monthly Advanced RDA per title and issue. (ii) DISTRIBUTOR will invoice PUBLISHER for Advanced RDA on the first day of each month for Advance RDA Issues on sale during such month. Such invoice will be in accordance with Exhibit "X" attached hereto and made a part hereof. Payment by PUBLISHER to DISTRIBUTOR for the invoiced Advanced RDA amount is due by the last day of such month. (iii) Any additions or deletions of Retailers participating in PUBLISHER's Advance RDA Program is to be first agreed upon in 27 writing by the parties thereto with such written agreement thereupon becoming an Amendment to this Agreement (iv) By the last business day of the fifth calendar month after the end of each calendar year quarter during the term of this Agreement DISTRIBUTOR will reimburse PUBLISHER for all monthly Advanced RDA payments paid by PUBLISHER to DISTRIBUTOR during such quarter. Following DISTRIBUTOR's payment of the aforementioned reimbursement, DISTRIBUTOR may invoice PUBLISHER solely for amounts actually claimed for such reimbursed quarterly period. PUBLISHER will pay DISTRIBUTOR's invoice within [***] days of receipt thereof. PUBLISHER reserves the right to deduct from subsequent payment of DISTRIBUTOR's invoice(s) amounts in dispute due to errors made by DISTRIBUTOR in calculation of such amounts based on PUBLISHER's review of sales data accompanying each invoice. DISTRIBUTOR will supply to PUBLISHER with each invoice a report in hard copy and excel file format in the form of Exhibit "Y" attached hereto showing by retail chain, wholesaler, title and issue the final sales of the Advanced RDA Issues reflected in the invoice. (v) Using sales data available to it, PUBLISHER shall provide Distributor with adjustments to Advanced RDA by submitting such adjustments in writing to DISTRIBUTOR ten (10) days in advance of the 1st day of the month. PUBLISHER's Advanced RDA adjustments 28 shall be adjusted by DISTRIBUTOR in its next monthly invoice to PUBLISHER for Advanced RDA. DISTRIBUTOR may only make adjustments to Advanced RDA with the prior written consent of PUBLISHER. (g) DISTRIBUTOR agrees to provide PUBLISHER with the following services in PUBLISHER's performance of audits of RDA programs: (i) DISTRIBUTOR will assist PUBLISHER in up to [***] RDA audits per year. This assistance will include the use of DISTRIBUTOR's regional and/or district field personnel as mutually agreed upon by DISTRIBUTOR and PUBLISHER. (ii) Upon reasonable request of PUBLISHER, DISTRIBUTOR will provide PUBLISHER with all RDA data pertinent to PUBLISHER that is available in DISTRIBUTOR's system. 11. DISCOUNTS AND ALLOWANCES ------------------------ PUBLISHER shall pay DISTRIBUTOR, as deductions from amounts payable to PUBLISHER as Settlement Payments, for any and all discounts and allowances, which are in excess of DISTRIBUTOR's national billing discount for each Publication, made by DISTRIBUTOR to any of Distributor's Sales Outlets in locations where special labor conditions and/or other situations and conditions exist causing such discounts or allowances; provided, however, that PUBLISHER has agreed to pay such discounts and allowances in advance in writing. Such discounts and allowances in effect on the Effective Date are set forth on Schedule "E" attached hereto and the parties hereby agree to such discounts and allowances. 29 12. RISK OF LOSS; SHORTAGES, ETC. ----------------------------- (a) Any loss, shortage, destruction of, or damage to copies of any issue(s) of each Publication shall at all times be at the risk of and be borne solely by PUBLISHER until delivery to Distributor's Sales Outlets by PUBLISHER'S designated motor carrier (the "Carrier") and acceptance by Distributor's Sales Outlets. No such delivery shall be deemed to have been accepted by Distributor Sales Outlet if such Outlet has reported a loss or shortage in accordance with the reporting procedures then in use by the Carrier. Subject to the limitations set forth below in this subparagraph (a) DISTRIBUTOR shall be entitled to charge PUBLISHER's account with DISTRIBUTOR for such copies for which DISTRIBUTOR has paid PUBLISHER, and same may be deducted by DISTRIBUTOR from any sums otherwise due PUBLISHER. DISTRIBUTOR shall provide prompt Notice to PUBLISHER after receipt of any claim for loss, shortage, destruction of or damage to copies of any issues of the Publication(s) as to which DISTRIBUTOR believes PUBLISHER bears the risk of loss pursuant to the terms of this subparagraph 12(a). Upon PUBLISHER's request, DISTRIBUTOR shall furnish to PUBLISHER all information and documents which DISTRIBUTOR may have with respect to any such loss, shortage, destruction or damage, including without limitation all bills of lading and necessary affidavits. The right and responsibility of filing any claims with the Carrier shall belong solely to the PUBLISHER; provided, however, that DISTRIBUTOR shall assist PUBLISHER in the filing of any such claim and shall execute and deliver to PUBLISHER such assignments, waivers, and releases to and with respect to any such claim as PUBLISHER or such Carrier's insurer may reasonably request. In the event that DISTRIBUTOR shall recover any part of such loss, then the DISTRIBUTOR shall pay over or credit the same to PUBLISHER promptly. 30 (b) From and after acceptance of a delivery by a Distributor's Sales Outlet, DISTRIBUTOR shall use its best efforts, consistent with its standard operating procedures, to cause all risk of loss to be borne solely by such Distributor's Sales Outlet, except as otherwise expressly provided in subparagraph 9(b)(v). If DISTRIBUTOR is unsuccessful in doing so, such losses shall be deducted from amounts due PUBLISHER by DISTRIBUTOR, subject to later adjustment pursuant to the terms of subparagraph (c) of this Paragraph 12. (c) Losses (other than losses borne by the Carrier or by PUBLISHER in accordance with the terms of subparagraph (a) of this Paragraph 12) shall be cumulated and calculated once annually as of July 31 of each year, with respect to issues of the Publications, the Settlement Payment Publisher Statements for which have been issued as of such date and shall be borne as between PUBLISHER and DISTRIBUTOR as follows: Amount of Loss as a PUBLISHER'S Loss DISTRIBUTOR'S Loss Percentage of Publisher's ---------------- ------------------ Gross Billings ----------------- (A) [***] or less 100% of the amount of the loss 0% of the amount of the loss (B) More than [***] but not more than [***] of Publisher's Gross [***] of the amount by which the [***] Billings, plus [***] of the loss exceeds [***] of Publisher's amount by which the loss exceeds Gross Billings and multiplied by [***] of Publisher's Gross Average Net Sale Percentage Billings and multiplied by Average Net Sale Percentage (C) More than [***] [***] of Publisher's Gross [***] of Publisher's Gross Billings. Billings plus [***] of the amount by which the loss exceeds [***] of Publisher's Gross Billings and multiplied by Average Net Sale Percentage.
31 DISTRIBUTOR shall be entitled to receive from PUBLISHER an amount equal to the total loss borne by DISTRIBUTOR pursuant to the terms of this subparagraph (c) multiplied by [***]. DISTRIBUTOR shall credit PUBLISHER with the amount of DISTRIBUTOR's loss minus the amount collected in the preceding sentence and add such net amount to the next payment due to PUBLISHER hereunder. 13. PROMOTION AND SOLICITATION COSTS -------------------------------- PUBLISHER shall at its own expense provide DISTRIBUTOR with reasonable quantities of promotional materials for DISTRIBUTOR's use as to any promotion which PUBLISHER desires to conduct. PUBLISHER shall pay DISTRIBUTOR for all reasonable direct costs in connection with all promotional and solicitation mailings which have been approved by PUBLISHER in advance in writing. If PUBLISHER requests DISTRIBUTOR to incur advertising or promotional expenses on behalf of PUBLISHER or for any of the Publication(s), PUBLISHER shall be responsible for all such expenses. 14. MISCELLANEOUS CHARGES --------------------- PUBLISHER shall pay DISTRIBUTOR for the following charges: (a) For each Audit Bureau of Circulation ABC State Circulation Analysis requested by PUBLISHER [***], and for each ABC County Report requested by PUBLISHER [***]. (b) For reshipment charges incurred by DISTRIBUTOR at PUBLISHER's request. (c) Any other charges or expenses incurred by DISTRIBUTOR specifically on PUBLISHER's behalf or for its Publication(s) at PUBLISHER's request, provided that all such charges or expenses shall be approved by PUBLISHER in advance. 15. PAYMENTS TO PUBLISHER --------------------- 32 (a) DISTRIBUTOR shall and hereby agrees to pay PUBLISHER the Net Billings of each issue of each Publication distributed pursuant to this Agreement, less all credits to which DISTRIBUTOR shall be entitled, if any, as follows: (i) An "Initial Advance Payment" in an amount equal to [***] (or [***] with respect to Publications not previously distributed by a national distributor and as to which there are no Measurement Issues) of Distributor's Estimated Final Net Billings with respect to such issue less any GST applicable to such issue and less any Over Advances (as hereinafter defined) shall be paid to PUBLISHER on the later of [***] days after the Completion of Shipping or [***] days after receipt by DISTRIBUTOR of the Printer's Completion Notice with respect to such issue, less any Canadian GST advanced by DISTRIBUTOR hereunder; and (ii) A "Settlement Payment" in an amount equal to the Net Billings of such issue, less (A) the aggregate amount of all-advance payments made by DISTRIBUTOR to PUBLISHER or for its account with respect to such issue; (B) all charges, allowances, discounts and other credits or reimbursements actually paid or credited to Distributor's Sales Outlets or others by DISTRIBUTOR to which DISTRIBUTOR shall be entitled pursuant to the terms hereof, or as shall have been approved in advance in writing by PUBLISHER with respect to such issue, or which have been actually paid or credited to Distributor's Sales Outlets or others by DISTRIBUTOR for other issues of such Publication 33 and which were not previously deducted from a payment by DISTRIBUTOR to PUBLISHER; (C) all fees and charges owing by PUBLISHER to DISTRIBUTOR pursuant to the terms hereof for services performed by DISTRIBUTOR with respect to such Publication; and (D) all other deductions permitted to be taken by DISTRIBUTOR pursuant to the terms of this Paragraph 15 shall be paid to PUBLISHER [***] days after the Off-Sale Date of such issue. (b) DISTRIBUTOR shall account and pay to PUBLISHER for Foreign sales and Returns separately from non-Foreign sales and Returns. All Initial Advance Payments for Foreign sales payable pursuant to the terms of subparagraph (a)(i) of this Paragraph 15 shall be calculated solely with respect to Foreign sales as set forth on the Settlement Payment Publisher Statements of the Measurement Issues. Notwithstanding the provisions of subparagraph (a)(ii) of this Paragraph 15, the Settlement Payment for Foreign sales of an issue shall be made [***] days after the Off-Sale Date of such issue. (c) Each Initial Advance Payment and Settlement Payment, and any other amounts paid by DISTRIBUTOR to PUBLISHER pursuant to the terms of this Agreement shall be accompanied by a statement substantially in the form of Schedule "G" attached hereto or in such other form as shall contain all the material information set forth on such Schedule "G". Each such statement is referred to in this Agreement as a "Publisher Statement." (d) In the event that any Settlement Payment Publisher Statement indicates an amount due DISTRIBUTOR ("Overpayment"), then DISTRIBUTOR may deduct such 34 overpayment from any moneys then due or thereafter due PUBLISHER from any payment with respect to a future issue of the Publication giving rise to such Overpayment. Any Returns received and/or charges or credits actually paid by DISTRIBUTOR pursuant to the terms of this Agreement with respect to any issue of any Publication(s) subsequent to the preparation of the Settlement Payment Publisher Statement and prior to the Outside Deadline for Returns with respect to such issue and not previously taken as a credit by DISTRIBUTOR shall be included as a credit to DISTRIBUTOR on any subsequent Settlement Payment Publisher Statement and deducted from any moneys thereafter payable to PUBLISHER with respect to such Publication. (e) In addition to the rights set forth in subparagraph (d), any Overpayment arising on or with respect to a Publication and any obligation owed by PUBLISHER to DISTRIBUTOR pursuant to the terms of subparagraph 16(e) ("Cross Obligation") shall be paid by PUBLISHER to DISTRIBUTOR within [***] business days after DISTRIBUTOR shall bill PUBLISHER therefor, and if not so paid DISTRIBUTOR may deduct such Overpayment or Cross Obligation from any payment due PUBLISHER hereunder. (f) [***]. (g) No advances or other payments shall be payable by DISTRIBUTOR to PUBLISHER: (i) For any issues(s) for which DISTRIBUTOR has in good faith exercised its right not to distribute pursuant to Paragraph 19 hereof, or (ii) For any issue(s) of any Publication if PUBLISHER has not published such issue(s) in accordance with this Agreement, or 35 (iii) For the last issue of each Publication(s) to be distributed by DISTRIBUTOR for PUBLISHER hereunder except as provided in subparagraph (h) of this Paragraph 15, and provided, however, that the provisions of this section (iii) shall apply only to the extent reasonably necessary to repay DISTRIBUTOR any amounts owed by PUBLISHER (h) The Settlement Payment for the last issue to be distributed by DISTRIBUTOR under this Agreement shall be made by DISTRIBUTOR, to PUBLISHER on the Outside Deadline for Returns with respect to such issue. (i) In any event, any and all Overpayments and any other amounts or obligations owed by PUBLISHER to DISTRIBUTOR (including but not limited to any obligations set forth in subparagraph 16(e)) not theretofore repaid or deducted by DISTRIBUTOR from amounts owed to PUBLISHER shall be repaid by PUBLISHER to DISTRIBUTOR [***] business days after demand after termination of this Agreement or after [***] days after PUBLISHER has ceased publication of all of the Publications. (j) The respective obligations of PUBLISHER and DISTRIBUTOR under this Paragraph 15 shall survive the termination of this Agreement. (k) PUBLISHER shall have the right to challenge any item set forth in any Publisher Statement, provided that all items which are not specifically challenged in writing within [***] days of the date of delivery of such Publisher Statement shall be deemed binding upon PUBLISHER as an account stated (except that arithmetic errors need not be challenged until [***] days after the date of delivery of such Publisher Statement, except that reserves for Foreign Return Credits need not be challenged until [***] days after the date of 36 delivery of such Publisher Statement, and except that any item which is not set forth in a manner so as to indicate the nature and amount of such item need not be so challenged until set forth in such manner in writing). For purposes of this subparagraph (k) a Publisher Statement shall be presumed to have been delivered fourteen (14) days after its due date in the absence of compelling evidence to the contrary. With respect to any item which is challenged by PUBLISHER, the parties shall use their respective best efforts to identify any incorrect or improper credits, charges or deductions, and to remedy any deficiencies resulting therefrom. (l) DISTRIBUTOR shall remit to PUBLISHER all GST repayable in accordance with the terms of Paragraph 7. At DISTRIBUTOR's option, such repayment may be combined with any other payment required to be made by DISTRIBUTOR pursuant to the terms of this Paragraph 15. 16. INDEMNIFICATION AND GUARANTEE ----------------------------- (a) PUBLISHER shall indemnify, hold harmless and promptly reimburse the DISTRIBUTOR, and all of its officers, directors, employees, agents and representatives (here collectively referred to as "Indemnitees"), from and against any losses, damages, fines, judgments, expenditures, claims, reasonable counsel fees, legal and court expenses, bond and bail charges and premiums, as well as any and all other costs of any kind or nature, resulting from any claims, civil or criminal actions or proceedings, and/or supplementary proceedings, or in connection with any inquiries, proceedings or actions by any federal, state, local and/or any other governmental agencies or authorities (collectively, "Claims") which in anyway relate to, or arise from by or reason of: (i) the title, contents or any printed matter contained within any of the Publication(s), including, but not limited to, editorial contents, photographs, pictures, cartoons, caricatures, drawings or other artwork, advertisements, and 37 classifieds, whether contained on any cover, or any page or advertisement contained in or for such Publication(s), or any promotional material for PUBLISHER or the Publication(s) (other than such as may have been created by DISTRIBUTOR); (ii) the breach or alleged breach of any of PUBLISHER's representations and warranties contained in Paragraph 4 of this Agreement, or (iii) any act of PUBLISHER relating to or affecting the distribution or sale of the Publication(s) or the services performed by any of the Indemnitees in connection with any of the Publication(s). (b) If any such Claim is brought or made against the aforesaid Indemnitees, DISTRIBUTOR shall give PUBLISHER Notice thereof as soon as practicable after commencement of same. PUBLISHER shall undertake the defense thereof at PUBLISHER's expense, provided that DISTRIBUTOR has provided the Notice set forth in the preceding sentence. The failure to give timely Notice shall not affect DISTRIBUTOR's rights of indemnification unless same has materially prejudiced the defense of any such Claim. DISTRIBUTOR shall have the right to participate with respect to any such Claim with its own counsel at its own expense, without waiver of its rights under this Paragraph 16. (c) PUBLISHER agrees that PUBLISHER shall have no right to compromise or settle any Claim against PUBLISHER in which DISTRIBUTOR is also named unless DISTRIBUTOR receives a release with respect thereto in connection therewith and unless DISTRIBUTOR receives five (5) days, prior Notice thereof. (d) PUBLISHER shall indemnify, hold harmless and promptly reimburse Distributor's Sales Outlets and their retail outlets (and all of their respective officers, directors, employees, agents and representatives who shall, 38 subject to the terms of this subparagraph (d), be deemed to be Indemnitees) from and against any Claims, provided that (i) DISTRIBUTOR is or has agreed to be liable for or to indemnify any such party; (ii) DISTRIBUTOR shall use reasonable commercial efforts to cause the defense of any such Claim to be tendered to PUBLISHER as soon as practicable after commencement thereof; and (iii) the scope of the indemnity under this subparagraph (d) shall be no greater than the smaller of the indemnity provided in subparagraph (a) of this Paragraph 16, or the scope of the indemnity provided by DISTRIBUTOR to such other party. (e) PUBLISHER's obligations hereunder shall survive the termination of this Agreement. 17. GALLEYS AND SHIPPING INSTRUCTIONS --------------------------------- DISTRIBUTOR shall and hereby agrees to supply the PUBLISHER, or at PUBLISHER's request, its printer or forwarding agent with one set per issue of shipment galleys, shipping instructions and pre-addressed mailing labels designating the names and addresses of, and specifying the number of copies of each issue of each Publication to be sent to, each of Distributor's Sales Outlets, or computer tapes containing such information sufficiently in advance of the Completion of Shipping with respect to such issue so that such issue can be shipped to arrive at Distributor's Sales Outlets, receiving point(s) prior to the On-Sale Date of such issue. 18. ACCESS TO RECORDS ----------------- DISTRIBUTOR shall give PUBLISHER or its duly authorized representatives, during business hours, reasonable access to DISTRIBUTOR's draw, sale and Return figures relating to each issue of the Publication(s) and other necessary records in support of all items of charges and credits made by DISTRIBUTOR to PUBLISHER 39 pursuant to this Agreement, and shall permit PUBLISHER at its own cost and expense, to inspect and make copies of the same and to audit such records relative to the distribution of any of the Publication(s) subject to any limitations on audit set forth in this Agreement. All such records shall be maintained for a period of twelve (12) months following the Off-Sale Date of each issue of each Publication. 19. DISTRIBUTOR'S RIGHT TO REFUSE DISTRIBUTION ------------------------------------------ (a) Anything to the contrary in this Agreement notwithstanding, the DISTRIBUTOR may at any time, without prior Notice, and without incurring any liability therefor, refuse to distribute any issue of any Publication(s) covered by this Agreement, or at its option exercise the right to terminate this Agreement, if such issue, in the reasonable exercise of DISTRIBUTOR's judgment, contains libelous, obscene or indecent material, or invades any person's right of privacy or other personal right, or infringes a copyright or trademark owned by a third party, or contains any matter of any kind that is in violation of law, or if such Publication shall be refused the use of the mails by the United States Postal Service or such public corporation as may then exist for the handling of mail, or if any such issue is refused entry into the United States or Canada. In the event DISTRIBUTOR refuses distribution hereunder with respect to an issue of a Publication, no payments shall be due PUBLISHER under Paragraph 15 with respect to such issue. Distribution of any issue of any Publication(s) covered by this Agreement or receipt of promotional copies does not and shall not establish nor constitute knowledge or approval by the DISTRIBUTOR of the contents of such issue. The PUBLISHER is aware that DISTRIBUTOR does not regularly and is not obligated to examine or pass upon any issues of the Publication(s). Nothing contained in this Paragraph 19 shall affect any rights of DISTRIBUTOR under Paragraph 16. 40 (b) If DISTRIBUTOR exercises its right pursuant to the terms of subparagraph (a) of this Paragraph 19 to refuse to distribute an issue of a Publication, PUBLISHER shall thereafter for a period of one hundred eighty (180) days have the right and option to eliminate such Publication from the Publication(s) covered by this Agreement, and upon exercise of such option, to have such Publication thereafter distributed by another distributor without liability to PUBLISHER or DISTRIBUTOR. 20. FORCE MAJEURE ------------- Neither party shall be liable for any damage due to causes beyond its control, including but not limited to, acts of civil or military authority, orders, rules or other actions by appropriate regulatory authorities, labor difficulties, fire, flood, power failure, or other natural or human catastrophes, acts of God, national emergencies, quarantine, insurrection, riots and failure of transportation and equipment, nor shall any of the above be deemed a default by either party. 21. RELATIONSHIP OF PARTIES ----------------------- It is understood and agreed that the relationship between PUBLISHER and DISTRIBUTOR is that of creditor and debtor. All moneys paid by or due and owing from Distributor's Sales Outlets for copies of Publication(s) not returned to DISTRIBUTOR, are and shall at all times belong to and remain the absolute property of the DISTRIBUTOR. Consequently, DISTRIBUTOR shall bear any losses from uncollectible accounts with Distributor's Sales outlets, or with their retailers (exclusive of Returns) and any legal fees or other costs or expenses incurred for collection or attempted collection therefrom with respect to the Publication(s). It is further understood and agreed that DISTRIBUTOR is not the 41 agent of the PUBLISHER except in connection with any services actually performed pursuant to Paragraph 10 of this Agreement, nor is PUBLISHER the agent of DISTRIBUTOR. Further, this Agreement does not constitute and shall not be construed as constituting a partnership or joint venture between PUBLISHER and DISTRIBUTOR. Neither party shall have any right to obligate or bind the other party in any manner whatsoever, except as otherwise specifically set forth herein, and nothing herein contained shall give, or is intended to give, any right of any kind whatsoever to any third persons. 22. ASSIGNMENT, TRANSFERS AND SALE OF RIGHTS, ETC. ---------------------------------------------- (a) Except as otherwise provided in subparagraph (b) of this Paragraph 22, PUBLISHER may not assign this Agreement or any rights hereunder to any other person, firm or corporation without the prior written consent of the DISTRIBUTOR; provided, however, (i) Nothing herein contained shall be construed to prevent PUBLISHER from assigning any right to receive any advance or payment which the DISTRIBUTOR is required to make to the PUBLISHER under this Agreement to any single party; (ii) Nothing herein contained shall be construed to prevent PUBLISHER from assigning any rights hereunder to any lender as collateral; and (iii) Any assignment made pursuant to this subparagraph shall state therein that at all times the same is subject and subordinate in all respects to any and all of the rights of DISTRIBUTOR under this Agreement. (b) In the event PUBLISHER enters into an agreement to (i) sell, transfer or dispose of all or substantially all of the assets of PUBLISHER (collectively, a "Sale"), to another party (other than 42 an Affiliate of PUBLISHER provided that such Affiliate is a party to an Affiliate's Distribution Agreement) or (ii) sell, transfer, assign, license or otherwise relinquish or dispose of any of its rights to publish any or all of the Publication(s) in an English language magazine format within the Territory and during the term hereof, or their title(s) or trademark(s) covered under, or distributed pursuant to, this Agreement (collectively, an "Assignment"), to another party (other than an Affiliate of PUBLISHER provided that such Affiliate is a party to an Affiliate's Distribution Agreement), then any such agreement shall require that either (x) any such other party be bound by and affirmatively assume all the obligations of PUBLISHER hereunder (including any liabilities to DISTRIBUTOR hereunder) with respect to all issues of the Publication(s) subject to such Sale or Assignment (as the case may be), the respective Determination Date(s) (as hereinafter defined) of which is (are) on or after the date of such Sale or Assignment (as the case may be) and that the DISTRIBUTOR be named as a third party beneficiary thereof, or in the alternative, (y) such other party enter into a new Distribution Agreement with DISTRIBUTOR on substantially the same terms and conditions as contained in this Agreement for a term equal to the then remaining term of this Agreement. Upon the satisfaction of one of the foregoing alternatives (x) or (y), PUBLISHER shall be relieved of any and all liability under this Agreement with respect to all issues of Publication(s) subject to such Sale or Assignment, the respective 43 Determination Date(s) of which is (are) on or after the date of such Sale or Assignment; provided, however, that PUBLISHER shall not be relieved of any existing or estimated obligation or liability to DISTRIBUTOR, or any subsequent obligation or liability if same concerns Publications, the respective Determination Dates of which are on or before the date of such Sale or Assignment. Any such obligation or liability as to which PUBLISHER has no bona fide dispute or contest or any obligation or liability of PUBLISHER as to which PUBLISHER has no bona fide dispute or contest arising subsequent to such a transaction shall be paid by PUBLISHER to DISTRIBUTOR within (10) business days of receipt by PUBLISHER of a statement therefor, and if not so paid, DISTRIBUTOR may deduct such sum from any amounts due or thereafter due to PUBLISHER hereunder, and if no such amounts are due or thereafter become due, DISTRIBUTOR may deduct such sum from any amounts due or thereafter due to a publisher which at such time is an Affiliate of PUBLISHER not earlier than two (2) business days after the giving of Notice to such Affiliate as to DISTRIBUTOR's intention to take such deduction. (c) For purposes of this Paragraph 22 the term "Determination Date" with respect to an issue of a Publication shall mean the On-Sale Date, the Completion of Shipping, or the date of the Settlement Payment Publisher Statement with respect to such issue, as selected by PUBLISHER in its sole discretion, provided that such selection is communicated promptly to DISTRIBUTOR, but in no event later than twenty (20) days before such Determination Date. (d) PUBLISHER shall not permit any Affiliate to obtain any of its Rights until and unless such Affiliate shall have executed an Affiliate's Distribution Agreement with respect to Publications using such Rights. 23. ONE-SHOTS AND/OR ANNUALS ------------------------ 44 Any one-shots and/or annuals derived from any of the Publication(s) as may hereafter be published shall be included in this Agreement on the same terms and conditions as set forth herein. 24. OTHER OBLIGATIONS OF DISTRIBUTOR -------------------------------- (a) DISTRIBUTOR shall not commence distribution, other than for PUBLISHER or an Affiliate of PUBLISHER, of magazines or periodicals principally containing crossword puzzles, fill-in puzzles, find-a-word type puzzles, sudoku puzzles or other similar type puzzles, boxing magazines, wrestling magazines or other similar type magazines which are published on the Effective Date by or for any of the publishers identified on Schedule "B" attached hereto or any newly commenced publications by any such identified publisher; provided, however, that this subparagraph (a) shall not apply (i) at any time when PUBLISHER and all Affiliates of PUBLISHER engaged in publication of such type magazines or periodicals shall collectively have a market share of less than fifty percent (50%) of their collective market share in 2005, or (ii) with respect to any such magazines or periodicals which have since the Effective Date been sold by the respective publishers identified on Schedule "B" to a publisher not on such Schedule if such magazines and periodicals sold have a collective market share of two percent (2%) or less at the time of the commencement of distribution by DISTRIBUTOR. For purposes of this subparagraph (a), the collective market share in 2005 of PUBLISHER and Affiliates of PUBLISHER engaged in publication of such type 45 magazines or periodicals shall be determined by reference to sale and Return data included in market share analysis performed in conformity with the requirements set forth on Schedule "D". (b) DISTRIBUTOR shall, and hereby agrees, to provide the services and the reports identified in Schedule "D" attached hereto. (c) DISTRIBUTOR shall, and hereby agrees, to designate one employee of DISTRIBUTOR reasonably acceptable to PUBLISHER who shall be the exclusive account executive for PUBLISHER during the term hereof; provided, however, that such exclusive account executive may also serve other publishers which are Affiliates of PUBLISHER, and further provided that in the event that the number of Publications covered hereby, and by other agreements similar hereto with such Affiliates becomes too great for any one account executive, DISTRIBUTOR may in its discretion designate another such account executive, who shall be non-exclusive. 25. NOTICES ------- (a) Except as otherwise specifically provided herein, all Notices permitted or required to be given hereunder shall be in writing and shall be given by receipted personal delivery or Federal Express (or similar overnight delivery service), at the respective addresses set forth below, or at such other address or addresses as may be designated by either party. Such Notices shall be deemed given when delivered to the respective address set forth below or to such overnight delivery service, except that a Notice of change of address shall be effective only from the date of its receipt. A copy of each Notice shall be sent simultaneously to: TO DISTRIBUTOR: TO PUBLISHER: c/o Kable News Company, Inc. 6198 Butler Pike 46 Blue Bell, PA 19422 Attention: President P.O. Box 736 14 Wall Street, Suite 4C Fort Washington, PA 19034 New York, NY 10005 Attention: Chairman with a copy to: with a copy to: Kable News Company, Inc. William J. Bonner, Esq. Attention: Vice President 40 Skippack Pike of Finance P.O. Box 736 Ft. Washington, PA 19034 Kable Square Mount Morris, IL 61054 as to Notices pursuant to Paragraph 3 to: Irving Needleman AMREP Corporation 300 Alexander Park, Suite 204 Princeton, NJ 08540 and/or to such other person(s) or addresses as such parties shall designate to the other by written Notice. (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 25 to the contrary, a Printer's Completion Notice may be sent to DISTRIBUTOR by telecopier transmission or electronic transmission with confirmation copy by first class mail or at PUBLISHER's option by overnight delivery service and shall be deemed given when so transmitted, if subsequently confirmed by telephone with the addressee or by a signed receipt of the addressee. 26. WAREHOUSING ----------- In the event that any Publication(s) or other materials of PUBLISHER are stored at DISTRIBUTOR's warehouse, PUBLISHER agrees to pay DISTRIBUTOR its then 47 current handling and storage costs as they may be increased from time to time. DISTRIBUTOR reserves the right to limit the amount of space allotted to PUBLISHER. PUBLISHER agrees to remove any Publication(s) or other material from DISTRIBUTOR's premises upon thirty (30) days' Notice. In the event PUBLISHER does not remove its property within such thirty (30) day period, DISTRIBUTOR may remove and dispose of same as it sees fit at PUBLISHER's expense. 27. NON-DISCLOSURE -------------- (a) The parties each acknowledge that the terms and conditions contained in this Agreement constitute confidential business information, and that therefore, each agree that they, their representatives, agents and employees will not disclose the terms and conditions of this Agreement to any person or organization except as otherwise provided in subparagraph (b) of this Paragraph 27. (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 27 to the contrary, (i) Either party may disclose the provisions of this Agreement to any potential purchaser, assignee, or licensee of any Publication or other asset of such party or to underwriters, accountants, lawyers, bankers or other lenders, or such other party or parties as such party may reasonably require in the ordinary course of business; provided that such potential purchaser, assignee, licensee, underwriter, accountant, lawyer, banker or other lender, or other party agree in writing to hold the provisions of this Agreement confidential in the same manner as required by the terms of this Paragraph 27; 48 (ii) Either party may disclose the existence or provisions of this Agreement if required to do so by any court order or subpoena, or if in the reasonable opinion of its counsel it is required to do so by any state or Federal securities or other law or regulation; and (iii) Either party may disclose the existence or provisions of this Agreement if any such information has already been publicly disclosed. 28. DISPUTE RESOLUTION FOR CLAIMS. ------------------------------ (a) If PUBLISHER shall have a claim for nonpayment of any sums allegedly due hereunder against DISTRIBUTOR which DISTRIBUTOR disputes, or if DISTRIBUTOR shall have a claim against PUBLISHER for nonpayment of any sums allegedly due hereunder which PUBLISHER disputes, the aggrieved party (the "Claimant") shall send Notice to the other party of a claim for nonpayment (and as to PUBLISHER, within the time periods permitted by subparagraph 15(j) ("Notice of Dispute'')). (b) If the claim for nonpayment is not resolved to the mutual satisfaction of both parties within Forty-Five (45) days after the Notice of Dispute is given, the Claimant may begin binding arbitration within twelve (12) months of the giving of the Notice of Dispute to resolve the claim. The parties agree that binding arbitration pursuant to the commercial arbitration rules of the American Arbitration Association under the auspices of its New York City chapter shall be the exclusive forum for resolving all such claims. (c) Arbitration awards may be entered as a judgment in a court of competent jurisdiction. Failure to pay an arbitration award within fifteen (15) days of its issuance shall be grounds for termination of this Agreement by the party entitled to receive such payment. 49 (d) If at any time a Claimant has delivered Notices of Dispute to the other party with respect to claims which aggregate One Hundred Thousand Dollars ($100,000) or more, such party must submit all such claims to arbitration within ninety (90) days of the giving of the Notice of Dispute with respect to the claim which, when aggregated with such other claims, caused the claims first to exceed One Hundred Thousand Dollars ($100,000). (e) DISTRIBUTOR shall retain all its rights to deduct any sums in dispute from an Initial Advance Payment or a Settlement Payment notwithstanding receipt of a Notice of Dispute by PUBLISHER demanding payment of the sum so deducted until the claim is resolved or an arbitration award is entered on such claim in PUBLISHER's favor. 29. CONSTRUCTION ------------ This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements executed and fully performed therein. 30. HEADINGS -------- The headings in this Agreement are for convenience or reference only and shall not limit or otherwise affect the meaning hereof. 31. GENERAL ------- (a) No waiver of any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. No waiver, modification or cancellation of any term or condition of this Agreement or any amendment thereto shall be effective unless executed in writing by the party to be charged. All remedies 50 afforded by this Agreement (including without limitation, the right to terminate this Agreement where applicable) shall be taken and construed as cumulative, that is, in addition to every other remedy provided herein or by law. (b) In the event that the date on which any payment is to be made under this Agreement is a Saturday, Sunday, or legal holiday, the payment shall be made on the next business day thereafter. (c) This Agreement shall be binding upon the parties hereto and their respective legal representatives, heirs, successors and permitted assigns. (d) No oral or other representations, understandings or agreements have been made or relied upon in the making of this Agreement other than those specifically set forth herein. This Agreement, supersedes all existing agreements by and between the parties hereto and constitutes final expression of their agreement with respect to the subject matter hereof and is a complete and exclusive statement of the terms thereof. The express terms hereof shall apply and supersede any course of performance between the parties and any practice or usage of the trade or industry. (e) The Schedules attached to this Agreement are incorporated into and hereby made a part hereof. (SIGNATURES ON FOLLOWING PAGE) 51 IN WITNESS WHEREOF, the parties hereto have caused this Agreement executed by their duly authorized officers, as of the day and year first above written. KAPPA PUBLISHING GROUP, INC. KABLE DISTRIBUTION SERVICES, INC. "PUBLISHER" "DISTRIBUTOR" By: /s/ D. McNulty By: /s/ Michael P. Duloc ---------------------------- ------------------------------ Despina McNulty, President Michael P. Duloc, President ---------------------------- ------------------------------ (Print Name and Title) (Print Name and Title) 1/13/09 12/30/08 ---------------------------- ------------------------------ (Date) (Date) 52 EX-31 3 exh31_0309.txt Exhibit 31.1 ------------ CERTIFICATION* - -------------- I, Peter M. Pizza, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended January 31, 2009 of AMREP Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Dated: March 12, 2009 /s/ Peter M. Pizza - ------------------------------------------ Peter M. Pizza Vice President and Chief Financial Officer - ---------------------- *The Registrant is a holding company that does substantially all of its business through two indirect wholly-owned subsidiaries (and their subsidiaries). Those indirect wholly-owned subsidiaries are AMREP Southwest Inc. ("ASW") and Kable Media Services, Inc. ("Kable"). James Wall is the principal executive officer of ASW, and Michael P. Duloc is the principal executive officer of Kable. The Registrant has no chief executive officer. Its executive officers include James Wall, Senior Vice President and Peter M. Pizza, Vice President and Chief Financial Officer, and Michael P. Duloc, who may be deemed an executive officer by reason of his position with Kable. Exhibit 31.2 ------------ CERTIFICATION* - -------------- I, James Wall, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended January 31, 2009 of AMREP Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Dated: March 12, 2009 /s/ James Wall - -------------- James Wall Principal Executive Officer of ASW - ---------------------- *The Registrant is a holding company that does substantially all of its business through two indirect wholly-owned subsidiaries (and their subsidiaries). Those indirect wholly-owned subsidiaries are AMREP Southwest Inc. ("ASW") and Kable Media Services, Inc. ("Kable"). James Wall is the principal executive officer of ASW, and Michael P. Duloc is the principal executive officer of Kable. The Registrant has no chief executive officer. Its executive officers include James Wall, Senior Vice President and Peter M. Pizza, Vice President and Chief Financial Officer, and Michael P. Duloc, who may be deemed an executive officer by reason of his position with Kable. Exhibit 31.3 ------------ CERTIFICATION* - -------------- I, Michael P. Duloc, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended January 31, 2009 of AMREP Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Dated: March 12, 2009 /s/ Michael P. Duloc - -------------------- Michael P. Duloc Principal Executive Officer of Kable - ---------------------- *The Registrant is a holding company that does substantially all of its business through two indirect wholly-owned subsidiaries (and their subsidiaries). Those indirect wholly-owned subsidiaries are AMREP Southwest Inc. ("ASW") and Kable Media Services, Inc. ("Kable"). James Wall is the principal executive officer of ASW, and Michael P. Duloc is the principal executive officer of Kable. The Registrant has no chief executive officer. Its executive officers include James Wall, Senior Vice President and Peter M. Pizza, Vice President and Chief Financial Officer, and Michael P. Duloc, who may be deemed an executive officer by reason of his position with Kable. EX-32 4 exh32_0309.txt EXHIBIT 32 ---------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of AMREP Corporation (the "Company") on Form 10-Q for the period ended January 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 12, 2009 /s/ Peter M. Pizza - -------------------------- Peter M. Pizza* Vice President and Chief Financial Officer /s/ James Wall - -------------------------- James Wall* /s/ Michael P. Duloc - -------------------------- Michael P. Duloc* - -------------- *The Registrant is a holding company which does substantially all of its business through two indirect wholly-owned subsidiaries (and their subsidiaries). Those indirect wholly-owned subsidiaries are AMREP Southwest Inc. ("ASW") and Kable Media Services, Inc. ("Kable"). James Wall is the principal executive officer of ASW, and Michael P. Duloc is the principal executive officer of Kable. The Registrant has no chief executive officer. Its executive officers include James Wall, Senior Vice President and Peter M. Pizza, Vice President and Chief Financial Officer, and Michael P. Duloc, who may be deemed an executive officer by reason of his position with Kable. -----END PRIVACY-ENHANCED MESSAGE-----